ECONOMIC REPORT

OF THE PRESIDENT

Transmitted to the Congress
February 2012

Together With
THE ANNUAL REPORT
of the
COUNCIL OF ECONOMIC ADVISERS

economic
re p ort
of the
president

transmitted to the congress
february 2012
together with

the annual report
of the

council of economic advisers
united states government printing office
washington : 2012
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ISBN 978-0-16-090181-2

C O N T E N T S

Page

ECONOMIC REPORT OF THE PRESIDENT ............................................... 1
ANNUAL REPORT OF THE COUNCIL OF ECONOMIC ADVISERS* 7
CHAPTER 1.

TO RECOVER, REBALANCE, AND REBUILD ............. 21

CHAPTER 2.

THE YEAR IN REVIEW AND THE
YEARS AHEAD .................................................................... 37

CHAPTER 3.

RESTORING FISCAL RESPONSIBILITY........................ 81

CHAPTER 4.

STABILIZING AND HEALING THE
HOUSING MARKET ........................................................... 99

CHAPTER 5.

INTERNATIONAL TRADE AND FINANCE ............... 129

CHAPTER 6.

JOBS AND INCOME:
TODAY AND TOMORROW ........................................... 163

CHAPTER 7.

PRESERVING AND MODERNIZING
THE SAFETY NET ............................................................ 197

CHAPTER 8.

IMPROVING THE QUALITY OF LIFE THROUGH
SMART REGULATION, INNOVATION, CLEAN
ENERGY, AND PUBLIC INVESTMENT ...................... 231

REFERENCES

............................................................................................. 267

APPENDIX A

REPORT TO THE PRESIDENT ON THE
ACTIVITIES OF THE COUNCIL OF ECONOMIC
ADVISERS DURING 2011 .............................................. 293

APPENDIX B.

STATISTICAL TABLES RELATING TO INCOME,
EMPLOYMENT, AND PRODUCTION ...................... 307

____________
*For a detailed table of contents of the Council’s Report, see page 11.

iii

economic report
of the

president

economic report of the president

To the Congress of the United States:
One of the fundamental tenets of the American economy has been
that if you work hard, you can do well enough to raise a family, own a
home, send your kids to college, and put a little money away for retirement. That’s the promise of America.
The defining issue of our time is how to keep that promise alive. We
can either settle for a country where a shrinking number of people do very
well while a growing number of Americans barely get by, or we can restore
an economy where everyone gets a fair shot, everyone does their fair share,
and everyone plays by the same set of rules.
Long before the recession that began in December 2007, job growth
was insufficient for our growing population. Manufacturing jobs were leaving our shores. Technology made businesses more efficient, but also made
some jobs obsolete. The few at the top saw their incomes rise like never
before, but most hardworking Americans struggled with costs that were
growing, paychecks that were not, and personal debt that kept piling up.
In 2008, the house of cards collapsed. We learned that mortgages had
been sold to people who could not afford them or did not understand them.
Banks had made huge bets and doled out big bonuses with other people’s
money. Regulators had looked the other way, or did not have the authority
to stop the bad behavior. It was wrong. It was irresponsible. And it plunged
our economy into a crisis that put millions out of work, saddled us with
more debt, and left innocent, hardworking Americans holding the bag.
In the year before I took office, we lost nearly 5 million private sector jobs. And we lost almost another 4 million before our policies were in
full effect.
Those are the facts. But so are these: In the last 23 months, businesses have created 3.7 million jobs. Last year, they created the most jobs
since 2005. American manufacturers are hiring again, creating jobs for the

Economic Report of the President

| 3

our strong manufacturing base. And their philosophy is simple: We are better off when everybody is left to fend for themselves and play by their own rules. This year’s Economic Report of the President. and our workers—by investing in the technologies of the future. describes the emergency rescue measures taken to end the recession and support the ongoing recovery. If you make more than $1 million a year. in companies that create jobs here in America. We can build an economy by restoring our greatest strengths: American manufacturing.first time since the late 1990s. like 98 percent of American families do. and a renewal of American values—an economy built to last. we have already agreed to more than $2 trillion in cuts and savings. prepared by the Council of Economic Advisers. Now it falls to us to live up to that same sense of shared responsibility. And we have put in place new rules to hold Wall Street accountable. I believe that tax reform should follow the Buffett Rule. we are poised to spend nearly $1 trillion more on what was supposed to be a temporary tax break for the wealthiest 2 percent of Americans. declining opportunity. you should not get special tax subsidies or deductions. But we need to do more. because of loopholes and shelters in the tax code. and lays out a blueprint for an economy built to last. and rising inequality—or we can make a break from the past. And we have to reclaim them. and in education 4 | Economic Report of the President . It is a moment when we can go back to the ways of the past—to growing deficits. however. a quarter of all millionaires pay lower tax rates than millions of middle-class households. so a crisis like this never happens again. the more America succeeds. your taxes should not go up. Now it is our turn. When it comes to the deficit. you should not pay less than 30 percent in taxes. Right now. Some. In fact. and for all those who are working to get into the middle class. and to the future of their country. That philosophy is wrong. and that means making choices. stagnant incomes and job growth. Right now. The more Americans who succeed.000 a year. skills for American workers. These are not Democratic values or Republican values. if you are earning a million dollars a year. On the other hand. still advocate going back to the same economic policies that stacked the deck against middle-class Americans for way too many years. if you make under $250. They are American values. Americans know that this generation’s success is only possible because past generations felt a responsibility to each other. This is a make-or-break moment for the middle class. American energy. It explains how we are restoring our strengths as a Nation—our innovative economy.

We must ensure that these investments benefit everyone and increase opportunity for all Americans or we risk threatening one of the features that defines us as a Nation—that America is a country in which anyone can do well. No one built this country on their own. the white house february 2012 Economic Report of the President | 5 . then I am as confident as ever that our economic future is hopeful and strong. and maintain our common resolve. This Nation is great because we built it together. regardless of how they start out.and training programs that will prepare our workers for the jobs of tomorrow. If we remember that truth today. join together in common purpose.

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the annual report of the council of economic advisers .

.

Sincerely. D.C. Abraham Member Carl Shapiro Member 9 . February 17.. President: The Council of Economic Advisers herewith submits its 2012 Annual Report in accordance of the Employment Act of 1946 as amended by the Full Employment and Balanced Growth Act of 1978.letter of transmittal Council of Economic Advisers Washington. Krueger Chairman Katharine G. 2012 Mr. Alan B.

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............ Consumption.......................... REBALANCE............. THE YEAR IN REVIEW AND THE YEARS AHEAD ............................................ 54 Business Inventories ...........42 DEVELOPMENTS IN 2011 AND THE NEAR-TERM OUTLOOK .. AND REBUILD ......................29 Restoring Fiscal Responsibility.............................................................................................. 66 11 ............. 53 Manufacturing Output ........................................................................34 CHAPTER 2..... and Prices ............................................................................ 30 REBUILDING A STRONGER ECONOMY .. 37 AN ECONOMY IN RECOVERY: KEY EVENTS OF 2011 ...................... 57 Government Outlays............................ 61 Wages........................................ and Investment ............................................46 Consumption and Saving..................................38 AN ECONOMY IN RECOVERY: THE LINGERING EFFECTS OF FINANCIAL CRISES.. TO RECOVER...... Innovation...............................................................C O N T E N T S Page CHAPTER 1....................................... 60 Labor Market Trends .............................................. 51 Business Fixed Investment ...................30 Jobs and Income: Today and Tomorrow ............................................. 57 State and Local Governments ............. 33 CONCLUSION ............... and Public Investment .................................................................. 21 RECOVERING FROM THE GREAT RECESSION ..................................23 REBALANCING AT HOME AND ABROAD .................................................... 31 Preserving and Modernizing the Safety Net ................................ 46 Developments in Housing Markets ............... Clean Energy........................................................ 59 Real Exports and Imports .................................. 63 Financial Markets ........... 32 Improving the Quality of Life through Smart Regulation...................................................... Labor Productivity.................................................................................................................................

......................................................................................................... 114 STRUCTURAL PROBLEMS IN HOUSING MARKET ................................88 Medium-Term Budget Projections ............................... 110 Residential Construction and Home Ownership Patterns ..................................................................................................................................................................................... 103 Negative Equity: An Unprecedented and Pervasive Problem .............................. 85 Heterogeneity in Effective Tax Rates among High-Income Taxpayers ...........95 CHAPTER 4.... STABILIZING AND HEALING THE HOUSING MARKET ........... 117 Adjudicating Legal Disputes ..................................................................................................................................................................................................... 86 Addressing the Role Of Exclusions and Deductions in Effective Tax Burdens...................... 105 MACROECONOMIC EFFECTS OF HOUSING MARKET WEAKNESS .................... 91 Improvement in Long-Run Budget Projections ............. 92 THE IMPORTANCE OF RESTORING FISCAL SUSTAINABILITY .................................................................................................................... 101 Initial Policy Responses to the Crisis .... 89 The Vital Role of Economic Growth in Future Fiscal Outcomes ..................................................................................... RESTORING FISCAL RESPONSIBILITY ........................................... 99 THE HOUSING CRISIS AND THE INITIAL POLICY RESPONSES ....................... 81 DETERMINANTS OF CURRENT DEFICITS ........................................................................................................................................................... 107 Consumption Effects............................79 CHAPTER 3................ 87 THE FISCAL OUTLOOK......................................................................................................................................... 118 Incentive Conflicts ............... 67 THE LONG-TERM OUTLOOK ..74 Growth in GDP over the Long Term.................................................................................93 THE PRESIDENT’S BALANCED APPROACH TO DEFICIT REDUCTION ......... 119 12 | Annual Report of the Council of Economic Advisers ................................Small Businesses and the Recovery.......................................................82 Falling Effective Tax Rates on Upper-Income Taxpayers............................................................................................................................................ 76 CONCLUSION ....

............................................................................................... AND THE U........................ 183 Education and the Workers of Tomorrow....................................................... 174 Overall Trends in Income and Rising Inequality ..........................POLICY ACTIONS................... 121 New Levers in Housing Policy .................................................................. 167 Job Dynamics ............... 140 The National Export Initiative ............................163 JOBS AND EMPLOYMENT .............................................................................S.............................................................................S......... 131 Outlook for Europe and Implications for the U.................................................................................... INTERNATIONAL TRADE AND FINANCE ........................ 183 Increasing Educational Attainment .................................................................... 164 THE DYNAMICS OF LABOR MARKET TRENDS ............................................... 172 Earnings and Income Mobility over the Career and between Generations .................... 192 CONCLUSION ................................................. 195 Contents | 13 ............ ECONOMY ........................ 153 CONCLUSION .............................................................................................. 137 International Cooperation in Resolving Crises ............. 143 The Role of Services in Export Growth and America’s Current Account Balance................................................................................................................ 138 FOREIGN DIRECT INVESTMENT..................................................................... 126 CHAPTER 5................................................................................................. 161 CHAPTER 6................................................................................................... 148 Policy Initiatives to Support Export Growth in Goods and Services ............................................................................... 178 Long-Term Unemployment ................................................... INTERNATIONAL TRADE................ Economy ........................... 124 CONCLUSION ....................................... JOBS AND INCOME: TODAY AND TOMORROW .... 120 Building on the Experience of Existing Programs .......................... 181 PREPARING FOR TOMORROW’S LABOR MARKET ........ 139 Investment in the United States by Foreign Companies....................129 THE EURO-AREA CRISIS AND ITS IMPLICATIONS FOR THE UNITED STATES .................... 167 Worker Flows ................ 189 Federally Supported Job Training ......

..................................................... PRESERVING AND MODERNIZING THE SAFETY NET.................. 238 “Look-Back” Initiative..................................................................CHAPTER 7........... 206 HEALTH INSURANCE ....................... AND PUBLIC INVESTMENT ........................................................................................................ 246 14 | Annual Report of the Council of Economic Advisers ..................................... 245 Intellectual Property Rights and Patent Reform ................................................ INNOVATION........... 240 Improvements in Everyday Life ............................................. 211 Expanding Health Care Coverage: The Affordable Care Act ................................. 232 Designing Smart Regulations..................... IMPROVING THE QUALITY OF LIFE THROUGH SMART REGULATION................. 209 The Economics of Employer-Sponsored Health Insurance .............................................................................. 201 Recent Trends in UI Receipt and Its Effect on Household Income .................................... 233 Smart Regulations in Practice .... 229 CHAPTER 8....... 200 The Economics of Unemployment Insurance .................................................................................................................................... 222 Policies to Address Retirement Saving Challenges ............................. 215 The Economic Benefits of Expanding Insurance Coverage ............................. 214 Provisions of the Affordable Care Act Now in Place ............................................... 234 Retrospective Analysis ............................................................................................................. 228 CONCLUSION .......................................................................................................... 202 Policy Innovations .................................................................... 221 Challenges to the Retirement Safety Net .......... 209 Medicaid and CHIP: A Health Care Safety Net for Children .................................. 219 RETIREMENT SECURITY ...........................................................................................................231 A SMART APPROACH TO REGULATIONS ....................... 242 INNOVATION...........................................197 UNEMPLOYMENT INSURANCE...................................................... 217 The Affordable Care Act and Medicare ....... 220 Declining Retirement Preparedness ..................... 203 OTHER SAFETY NET PROGRAMS ...................................... 243 Measuring Innovation.............................................................................................. CLEAN ENERGY.....................................................................

........... 250 Wireless Broadband and Spectrum Policy.................. 1979–2010 ............. 2007–2011 .............. 307 FIGURES 1-1..... 259 Government and Private Sector Roles in Infrastructure ................................................................................ 253 Reducing Emissions ............................................................. 266 REFERENCES .... 27 Unemployment Rate Increases in Recessions Associated with Financial Crises ........................................................................ and Production ............... 247 Commercialization ..............................267 APPENDIXES A....................... 1-2............................................... 252 Reducing Demand .. 2-4................................................... 264 CONCLUSION ................................................................................................................ 1-4....................................................... 2-1............... 255 INFRASTRUCTURE .................................... 293 Statistical Tables Relating to Income.................................................................................................................................... 252 Enhancing Energy Security ..................... 253 Increasing Domestic Energy Supplies .......................................................... 254 Supporting Clean Energy R&D and Infrastructure ................. 39 Real GDP During Recoveries............................. 45 Unemployment Rate Increases in Recessions Associated with Financial Crises ............. 259 The State of the Nation’s Infrastructure ....................................Private and Public Investments in R&D ......................................................... 251 CLEAN & SECURE ENERGY ............ Report to the President on the Activities of the Council of Economic Advisers During 2011 ............................ B............................. Median Household Income.. 28 Earnings Ratio: College Degree or More to High School Degree........ 2-3........................................ 2-2.................................. 261 Financing Infrastructure Investments ..... 262 Recent and Current Federal Infrastructure Initiatives ................................................................................................................... 43 Real GDP in Recessions Associated with Financial Crises ........................ 45 Contents | 15 ............................................. Employment................ 1-3....... 33 Real GDP Growth by Quarter................................................ 2007–2011 .......... 22 Change in Nonfarm Payrolls......................................... 1963–2010 ..............................

.................... 2-8................... 2-10........................ 1990–2011 ................................................................................... 2002–2011 .. 1947–2011 . 86 Average Individual Income Tax Rates by Income Quintile.............................. 73 Labor Force Participation and Educational Enrollment...S....... Ages 16–24..... 3-2.......... 5-2.......... 114 Real GDP Growth...... 2004–2012 ...................................................................... 2-13..... 5-4........... Nonfarm Business................................... 1979–2011 ........ 141 Change in Manufacturing Unit Labor Costs.................................................... 2-9................ 2-15......... 1960–2010. 5-7........................................... 151 Annual Report of the Council of Economic Advisers ...... 2-6...... 103 S&P/Case-Shiller: January 2009 Expectations of Future House Prices and Actual Price Index .. 2-11......... 4-2................. 89 Housing Busts in U.............. 4-3..... 66 Private Sector Job Recovery by Firm Size........ 138 Annual FDI Inflows............ 3-3......... 2000–2011 ............. 2007–2011 . 3-1......... 3-4. 134 Share of Each State’s Goods Exports to the European Union by State..................................... 2010–2012 ........ 5-5................................ 47 Business Fixed Investment and Cash Flow..... 61 Private Nonfarm Employment During Recoveries ... Current Account Balance and Its Components. 4-4....... 2-7................ 5-1.. 62 Unemployment Rate.... 2000–2011 ...... 68 Small Business Commercial and Industrial Loans..... 4-1....... History ..................... 149 Contribution to Services Surplus by Service Sector Category............................... 84 Average Tax Rates for Selected Income Groups Under a Fixed Income Distribution............................ 2003–2012 .. 102 Price-to-Rent Ratio and Mortgage Debt ........... Selected Countries..... 106 Employment Growth: Nontradable Industries ........................ 4-5................................S.. 130 Economic and Fiscal Indicators for Selected Euro-Area Countries........... 1952–2011 ................................ 5-8........... 2007–2011 .............2-5.......... 2002–2010 .................................................... 2-16..... 5-3.......................... 146 U........... 87 Projected Medium-Term Budget Deficits............. 2010 ...................................... 65 Price Markup over Unit Labor Costs............. 63 Consumer Price Inflation........................................................................ 65 10–Year Treasury Yields............ 2004–2011... 2010.... 2011......... 2-12....................................... 2-14................... 2011–2022 ..................... 2004–2012 ..... 55 Weekly Initial Unemployment Insurance Claims.............................. 2006–2010 . 132 10-Year Bond Spreads Relative to Germany................... 69 Employment Outlook for Small Businesses. 2000 and 2008 ........ 5-6.. 78 Selected Components of Deficit Projections: 2009–2019 ...... 16 | Consumption and Wealth Relative to Disposable Personal Income (DPI)................. 104 The Distribution of Underwater Mortgages By State..........

........... 177 Percent of Households with Annual Income within 50 Percent of the Median ........................ 6-9... 6-5. 216 The National Retirement Risk Index................... 7-3................ 1963–2010 ........ 6-7........... 6-10...... 7-5................... 223 Percent of Individuals with Various Shares of Family Income from Social Security........................ 6-11......... 187 Difference Between Projected Employment Growth Rate by Education and Average Projected Employment Growth Rate..................................... 171 Hires and Separations................................................................. 164 Unemployment Rate.................................................................... 170 BED Estimates of Quarterly Gross Job Gain and Loss Rates.................... 182 Average Annual Earnings by Worker Education Level.... 180 Median Duration of Unemployment and Long-Term Unemployed as a Percent of Total Unemployed.. 211 Percentage of Workers Without Health Insurance and the Ratio of Per Capita Health Expenditures to Median Income.. 1913–2010 ........................ 2010 Q3 and 2011 Q2 ........................................... 6-12.................... 173 The Great Gatsby Curve: Inequality and Intergenerational Mobility ............. 7-6............. 7-4................ 212 Percentage of Children and Adults Without Health Insurance....................................................................... 8-2..... 6-2......................................... 1980–2011.......................................................... 1990–2012 ........................................ 6-8... 1980–2009 ................... 178 Growth in Real After–Tax Income...... 2001–2011......... by Age of Householder............ 165 BDS Estimates of Annual Gross Job Gain and Loss Rates..................... 7-1......................................................................... 179 Share of Total U............... 2010 ................................................ 1980–2012 ................... 188 Share of Household Income from Unemployment Insurance among Recipients in 2010.6-1................. Income Earned by Top 1 Percent........ 6-6............ 1990–2011 ... Vehicle Safety......... 1988–2010 ............................ and Air Quality........... by Household Type .......................... 203 Percentage of Private Sector Establishments Offering Health Insurance by Number of Employees.. 7-7.... 8-1................. 172 Flows into and out of Unemployment as Percent of the Labor Force... 225 Benefits and Costs of Regulations..... 6-13.............S........................ 2001–2011 ................................ 1980–2011............................ 1980–2010 ............ 1983–2009.......... 2010–2020 ......................................... 1979 –2007 ..................... 7-2.......... 6-4................................................ 6-3............................................................ 1979–2010 ................ 244 Contents | 17 . Monthly Change in Private Sector Employment...... 1996–2010 ................ 235 Economic Growth............... 213 Percentage of Young Adults Without Health Insurance..........

............. by Product ........ 5-1....... 145 Dissection of U.......................................................... 96 Data Watch 4-1: Need for a Comprehensive Source of Data on Mortgage Debt and Performance.................................... 1952–2022 .... 240 18 | Annual Report of the Council of Economic Advisers .................................................TABLES 2-1.......................... 2010 .......... 225 BOXES Box 2-1: SBA’s Role in Financing Small Firms During the Recovery .................... 116 Data Watch 5-1: The Role of the New Office of Financial Research in Combating Global Financial Risks............. Goods Exports........... by Market............................. 154 Cross-Border Services Imports by Type and Country.................. 7-2................. 154 Number of Participants and Total Federal Expenditures for Safety Net Programs.................. 176 Data Watch 7-1: The Census Bureau’s Supplemental Poverty Measure ................................................................S... 70 Box 6-1: Work-Life Balance ................... 198 Data Watch 7-2: Health Data for Policy ................................ 5-4........ 218 Data Watch 8-1: The Value of Information—the PACE Survey ............... 3-1............................... 24 Data Watch 1-2: Revisions to Estimates of the Gross Domestic Product ............S......................................... 136 Data Watch 6-1: Measurement of Startups ... 2-3................................... 2008 ........ 56 Data Watch 3-1: Data from the IRS Statistics of Income Division .. 2-2......................... 111 Data Watch 4-2: Need for a Comprehensive Source of Data on Home Sales............................................ Goods Export Growth.. 169 Data Watch 6-2: Intergenerational Mobility ......... Administration Economic Forecast ......................... 77 Distribution of Average Federal Tax Rates......................................... 5-3.............................. as of February 2012.................. 88 Growth in U........... 75 Components of Actual and Potential Real GDP Growth........ 52 Data Watch 2-2: Investment in Intangibles ........................... 184 Box 8-1 Developing Domestic Energy: Shale Gas and Shale Oil ....... 92 Data Watch 3-2: Measuring Government Debt across Countries............................ 207 Distribution of Wealth Components for Households Aged 65–69.................... 26 Data Watch 2-1: The Data Implications of the Transition to a Services-Based Economy ............................................ 256 DATA WATCH Data Watch 1-1: Innovation in Measurement...................................... 5-2......................... 2010 ....... 148 Cross-Border Services Exports by Type and Country. 2010 ....................................................... 7-1................... 74 Alternative Labor Market Forecasts...................

. 90 Economics Application Box 4-1: Making a Decision about Refinancing a Mortgage..................................................... 226 Economics Application Box 8-1: Comparing Benefits and Costs .............. 108 Economics Application Box 6-1: Calculating the Cost of College ............................................... 236 Contents | 19 ........................................................... 193 Economics Application Box 7-1: Financial Literacy and Common Mistakes Made by Retirement Savers .................ECONOMICS APPLICATIONS Economic Application Box 3-1: Measuring Progressivity in the Tax Code ....................

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But in 2011. the Nation continued to recover from the Great Recession and to make progress toward building a stronger foundation for more balanced and sustainable economic growth in the future. by the third quarter of 2011. which displays the median household’s income each year after adjusting for inflation. as is common. Income growth was stagnant for middle-income earners in the 2001–07 period and. Fundamentally. a massive loss of wealth during the financial crisis that continues to constrain consumption. Sustaining and strengthening the ongoing recovery remains a top priority for the Obama Administration. and excess residential home building during the housing boom that continues to cause weakness in residential construction and the housing sector. the real gross domestic product (GDP) of the United States had surpassed its peak level at the start of the 2007–09 recession. many of the problems that have plagued the economy in the past decade can be traced to weak income growth for middle-class workers. The pace of the recovery has not been faster because of the severity of the financial and economic crisis and the unique nature of the problems that led to the crisis in the first place. These problems included excess borrowing in the run-up to the financial crisis that subsequently caused massive deleveraging by households. This can be seen in Figure 1-1. As a result of this growth. AND REBUILD T he problems that caused the deep recession that began at the end of 2007 and lasted until mid-2009 were a long time in the making and will not be solved overnight. while seeking to address the fundamental imbalances and other problems that had built up for decades and erupted with the financial and economic crisis in 2008. The economy has expanded for 10 straight quarters. declined in the recessions at the end and beginning of the decade.C H A P T E R 1 TO RECOVER. REBALANCE. middle-income households would have greatly improved their financial situation. Had income grown at the same average annual rate in the first decade of the 2000s as it did in the 1990s. 21 .

including the payroll tax cut. This disturbing trend has taken place over several decades.0 percent in October 2009 to 8.000 50.  1979ʹ2010 Dollars  (2010) 60. in part.000 Actual 46. many families borrowed at an unsustainable rate to make up for the weak income growth they experienced in the 2000s.000 1979 1983 1987 1991 1995 1999 2003 2007 Note:  Shading  denotes  recession. Over the course of 22 | Chapter 1 . the extension of unemployment insurance.000 44. In addition to lingering effects of the financial crisis and the longstanding problem of weak income growth for the middle class.000 2010 48. of measures the President signed into law in December 2010. many in the middle and at the bottom have struggled. While those at the top of the income distribution have seen strong income growth. are therefore at the root of the Obama Administration’s strategy to reestablish an economy that is built to last. Despite these encumbrances—and with the support.3 percent in January 2012. self-inflicted wounds to confidence from the contentious debt ceiling debate over the summer. Many economists have argued that.000 56. and 100 percent business expensing—private-sector employment has increased for 23 straight months. and stress in European debt markets.Figure  1-­1 Median  Household Income. the recovery in 2011 faced additional shocks from natural disasters in Asia.000 Projection  if  median   household  income  had   grown  during  the  2000s   at  the  same  rate  as  it   did  during  the  1990s 58. A related phenomenon is that the size of the middle class has shrunk. when confronted with easy credit and nontransparent terms. and the unemployment rate fell from a high of 10.000 54. Strengthening and expanding the middle class.000 52. and adequately reforming the financial sector.000 42. Source:  CEA  calculations  and  Census Bureau. unrest in the Middle East that caused oil prices to spike.

the largest drop in any year since 1994. in many instances.7 percentage points. and rebuild. to 8.2011. 2009. The sharp drop in unemployment toward the end of 2011 took economic forecasters by surprise. and Rebuild | 23 .0 percent at the end of the year. because unemployment was projected to remain in the high-8-percent range by many forecasters. In Chapter 2.9 percentage points. The plunge in economic activity was even deeper than the Bureau of Economic Analysis initially reported: revised estimates showed that the economy contracted at an 8. including the Council of Economic Advisers (CEA). and 3) invest in education. rebalance. As part of the Budget process.1 percent. 2) develop credible policies to return to a fiscally sustainable path in the intermediate and long term. and infrastructure in order to build a stronger foundation for future economic growth and an expanding middle class. One of the reasons for the range of forecasting uncertainty is that it is unclear how many of the President’s job creation initiatives Congress will enact in the coming year. Most of that decline occurred in the last three months of 2011. the consensus of Blue Chip forecasters lowered its forecast of the unemployment rate for the end of 2012 by about 0. made its forecast of economic outcomes in mid-November 2011. Since that forecast was locked down.S. the CEA. the Nation needs to recover.000 jobs a month. the U. Rebalance.S. goods and services in the short run to support the ongoing recovery and put more people back to work. and employment was falling by more than 700. innovation. when Congress has not acted.9 percent annualized To Recover.8 percentage point. economy was contracting at an alarming rate. together with the Office of Management and Budget and Treasury officials. Put simply. and the advance estimate of GDP growth for the fourth quarter of 2011 exceeded what most forecasters had expected in November. domestic energy. the unemployment rate fell by 0. the President has taken steps to implement this agenda. As described in this Report. The more optimistic private forecasters expect the rate to be below 8. The Administration’s economic strategy continues to be to: 1) pursue avenues to raise demand for U. the reported unemployment rate has now fallen by 0. research. In view of the new information. Respected private forecasters have estimated that a continuation of the 2 percentage point payroll tax cut and extended unemployment insurance benefits through the remainder of 2012 could significantly boost economic growth and job creation. Recovering from the Great Recession When President Obama took office on January 20. the Report illustrates the latest forecasting range for the unemployment rate.

and the wages they are earning. “(t)he volume of data generated outside the government statistical systems is increasing much faster than the volume of data collected by the statistical systems. and opportunities for improvements in the Nation’s economic measures. data based on electronic records generated for commercial or administrative purposes may not be nationally representative. for instance. among many other examples. can improve those models’ predictive power. The Obama Administration has endeavored to create new databases that track student performance across different stages of education.Data Watch 1-1: Innovation in Measurement Economic statistics are central to understanding how the economy is working—whether consumer spending is growing or shrinking. the Report offers examples of recently developed data series that shed light on economic performance. the number of people currently employed. scanner data and social media data). businesses. turns out to be a good predictor of sales of that car. analyses of the outcomes achieved by students with different educational experiences will help to guide improvements in instructional quality and college choice.. for example. The number of search queries for a particular make of automobiles in the last two weeks of a month. even 24 | Chapter 1 . data from Internet searches. The growing integration of technology in our daily lives has created an abundance of new possibilities for producing better and more timely data based on nontraditional sources of information. This year’s Economic Report of the President highlights the role that accurate and timely economic measurement plays in supporting sound economic decisions by policymakers. significant gaps in available economic data. as well as the performance of postsecondary educational institutions. Innovative statistics based on electronic records compiled as a byproduct of commercial activity also can be informative. There is a long history of using administrative records to produce economic statistics—under strict standards of confidentiality.g. the extent to which businesses are investing in equipment and software.g. Nontraditional sources of information include both digital administrative data (e. Unlike government survey data. Adding series based on Google Trends to economic forecasting models. Once these databases have been developed. almost all of these data are digitized in electronic files” (Groves 2012). and expanding access to these records.. tax records and records related to participation in government transfer programs) and records generated in the private sector (e. and the number of searches for real estate agencies is one of the best predictors of current home sales (Choi and Varian 2009). In a series of Data Watch boxes. and families. As Census Bureau Director Robert Groves has written.

S.000 jobs per month over the past three months (ending in January 2012). The Administration immediately took bold steps to turn around an economy in free fall. can pose privacy concerns that must be addressed. It worked to stem the job losses and put people back to work through the American Recovery and Reinvestment Act of 2009 (the Recovery Act). this improvement since the end of the recession represents real progress. Other uses of both commercial and administrative data to improve official statistics can easily be imagined. the largest quarterly downward revision in history.4 percent over the past 10 quarters. rate in the last quarter of 2008. from the initial advanced estimate of 3. Government statistical agencies can play a vital role in this burgeoning field by providing survey data to improve the representativeness of nonsurvey data.8 percent.for purely statistical purposes. Clearly. and Rebuild | 25 .1 million jobs in 2011. economy displayed notable resilience in 2011. Economic growth turned positive in the third quarter of 2009.3 trillion dollars.  Nevertheless.000 jobs per month in 2011. and the economy has grown at an annualized growth rate of 2. shown in Figure 1-2. At $15. real GDP now exceeds its pre-recession peak. The Census Bureau is exploring the use of administrative data on receipt of government benefits to improve estimates of income in its household surveys. the most in any year since 2005. and families.7 percent in the second quarter of 2009 from –6. The economy is continuing to recover from the most severe downturn since the Great Depression. and it rescued the American auto industry. the U. Progress in this area will ultimately lead to better informed decisions by policymakers. Private nonfarm employment growth. given the depth and severity of the Great Recession. The Bureau of Economic Analysis. and it shored up the banking system and stabilized the financial sector through a series of measures including stress tests for banks and rigorous requirements for banks to raise private capital and repay the government for funds from the Troubled Asset Relief Program. the contraction of GDP slowed markedly to –0. Rebalance. Private employers added more than 2. To Recover. and the Federal statistical agencies can improve their measures by integrating private-sector information. Despite numerous adverse headwinds—both domestic and international—that threatened the recovery. averaged 174. plans to use credit card data to improve its statistics on international travel services.7  percent in the preceding quarter. Soon after the Recovery Act was passed. and 218. But their use also has the potential to improve and enrich existing official statistics. for example. businesses.

they are smaller than the average for other large developed economies (see. The first estimate of GDP appears within a month after the end of the quarter to which it applies and is based. which was originally reported as –3. This was the largest downward revision to the quarterly data ever reported. gross private investment. McKenzie. 26 | Chapter 1 . a benchmark revision incorporates data from the Economic Censuses (Landefeld. While revisions to initial GDP estimates for the United States can be substantial. Between 1983 and 2009. each of these revisions incorporates new or revised information from private and public sources. and Fraumeni 2008). and Grimm 2011). the revised data for 2008 and 2009 indicated that the recent recession was considerably more severe than originally reported. on source data that are preliminary and incomplete. and Wright 2005). Still. Rogers. and government expenditures. constructed as the sum of personal consumption. for example.2 percentage points in absolute value (Fixler. GreenawayMcGrevy.8 percent and later revised down to –8.9 percent in the annual revision released in July 2011. in part. Annual revisions to the National Income and Product Accounts allow the Bureau of Economic Analysis (BEA) to catch up in an organized way with further revisions to the source data used to compute GDP and to incorporate additional data available only at yearly frequencies. including monthly and quarterly Census Bureau surveys. as well as the timing of cyclical peaks and troughs (Fixler and Grimm 2005).Data Watch 1-2: Revisions to Estimates of the Gross Domestic Product The gross domestic product (GDP) is a summary measure of the Nation’s economic activity. more accurate early estimates of GDP would be helpful to policymakers and businesses. revisions in the annualized growth rate of real quarterly GDP between the first and latest available estimate averaged 1. More complete data are available for the second estimate. Seskin. and the third estimate. Tosetto. and Fixler 2008). net exports. And despite sometimes sizable revisions. released the month after that. Improving the quality and timeliness of the source data available to the BEA is the best way to accomplish this objective. Further. About every five years. Taken as a whole. A dramatic example is provided by the revisions to the GDP growth rate for the fourth quarter of 2008. published the following month. Faust. research has found that there is only limited potential to improve the initial GDP estimates given the contemporaneous information available to the BEA (Dynan and Elmendorf 2001. early estimates of quarterly GDP growth generally do a good job of capturing increases or decreases in growth rates.

From February 2010 through January 2012 (months 8 through 31 after the official end of the recession).000 Jan-­07 Jan-­08 Jan-­09 Jan-­10 Jan-­11 Jan-­12 Note:  Shading  denotes  recession.stronger economic growth and faster job gains are needed to make full use of the Nation’s human and physical resources. job growth has lagged a resumption of economic growth. Because of the excess home and office construction during the housing bubble.7 million jobs. once Recovery Act funds began to phase out.0 million jobs (from November 1991 to October 1993). and over the comparable period of the Figure  1-­2 Change  in  Nonfarm  Payrolls. As has been the pattern in recent recoveries. which is noteworthy progress given that the earlier recoveries received a strong boost from residential home building and State and local government spending. and Rebuild | 27 . the pace of real GDP growth so far during this recovery has been almost as fast as was the case at a similar stage of the recoveries following the 1991 and 2001 recessions. businesses added 3. versus 11 months after the end of the 1991 recession and 21 months after the end of the 2001 recession. Over the comparable period of the recovery from the 1991 recession. Job growth started in February 2010. private-sector employers added a net total of 3. On the whole. To Recover. In addition. State and local governments cut spending and laid off workers at a faster pace.  2007ʹ2011 Thousands. Source:  Bureau  of  Labor  Statistics. Rebalance. 8 months after the official conclusion of the 2007–09 recession. seasonally  adjusted 400 200 0 Jan-­12 -­200 -­400 -­600 Total  (excluding  Census  hiring) -­800 Private -­1. Both of these developments are unprecedented headwinds that were not present during other postwar recoveries. construction of structures has been notably weak so far in this recovery.

In a group of 14 countries identified by the economists Carmen Reinhart and Kenneth Rogoff as having experienced severe financial crises. Yet.5 Argentina  (1998:Q2) 6.S.  Figure 2-4. 28 | Chapter 1 .   U.S.8 U.1 Philippines  (1998:Q1) 3.S.8 24.  "Average  14"  excludes  the 2007–2009  U.  business-­cycle   peaks  are  defined   by  the  National  Bureau  of  Economic  Research.    Malaysia.  Unemployment  rates  for  Argentina.  recession.  and  Thailand  are   based  on  annual  data. In contrast.7 Norway  (1988:Q1) 3.;  national  sources.6 Average  14 7.1 million jobs (July 2002 to June 2004). The catastrophic financial crisis that exacerbated the economic downturn during the second half of 2008 is an important reason why the pace of the recovery has not been stronger.  and  the  business-­cycle   peaks  of  other   countries  refer  to  the  peaks  of  real  GDP. previous research finds that recessions associated with financial crises not only tend to be deeper than other types of economic downturns but also longer lasting.  Each  data  point  represents  the  increase  from  the  business-­cycle   peak  to  the  subsequent  peak  in  the  unemployment  rate.7 percentage points as a result of their financial crises (Figure 1-3). on average. shows the average rise in the unemployment rate in each quarter elapsed from the beginning of each recession.5 14. in large part because of the emergency actions that were taken to strengthen the economy and stabilize the financial system. the unemployment rate across these 14 countries increased by an average of 7. recovery from the 2001 recession. In addition.4 South  Korea  (1997:Q3) 6. businesses added 1.1 Colombia  (1998:Q2) 5.;  International  Monetary Fund.7 Sweden  (1990:Q1) Spain  (1978:Q2) Finland  (1990:Q1) U.Figure  1-­3                                                               Unemployment  Rate  Increases  in Recessions   Associated  with  Financial  Crises Percentage point  increase  from  business-­cycle  peak Malaysia  (1997:Q4) 1.  World  Economic   Outlook  and  International  Financial   Statistics.  (2007:Q4) 5.S.   Source:  Reinhart and  Rogoff  (2009). output decreased by substantially less.  (1929:Q3) 0 5 10.5 Indonesia  (1997:Q4) 6.1 1 Figure 1-3 shows the average increase in the unemployment rate across 14 financial crisis recessions. the United States appears to have fared relatively better than other countries that have experienced severe financial crises.5 10 15 20 25 Note: Financial  crises  are  from  recessions  identified   by  Reinhart  and  Rogoff  (2009)  as  associated  with  major. U.9 Japan  (1993:Q1) 3.;  Moore  (1961).;  CEA  calculations.  Colombia.S. from each country’s business cycle peak to their subsequent peak unemployment rate. in contrast. As discussed in Chapter 2. these crises were followed by a real GDP decline of more than 10 percent.; National  Bureau  of  Economic  Research. as bad as the Great Recession was.  Indonesia.5 12.1 Thailand  (1996:Q3) 2.0 Hong  Kong  (1997:Q3) 6.  systemic  financial crises. regardless of how many quarters it took the unemployment rate to reach its peak.

the Obama Administration took steps to restore balance to the U. Chapter 4 highlights the challenges that remain in the housing market. and Rebuild | 29 . which led to unsustainable expansions in residential construction and consumer spending.S. One step in this direction is provided To Recover. and the President remains committed to pursuing a balanced approach to put America on a sustainable fiscal path. and a boom-and-bust cycle in housing prices. economy to help prevent the sorts of excesses that led to the financial crisis that erupted in 2008. the U. deriving primarily from institutional frictions. help workers become more productive. the types of investments that expand capacity. inadequate oversight. Exports as a share of GDP have also grown by 13 percent since the end of the recession.6 points less than the average country’s experience. Those proposals began a process that culminated at the end of July 2010 with President Obama signing the Wall Street Reform and Consumer Protection Act of 2010. Business investment has begun to rebound.S. The growth in exports puts the United States on track to meet the President’s goal of doubling exports by the end of 2014. In June 2009. Rebalancing at Home and Abroad Once economic recovery began in mid-2009. As Chapter 3 details. The financial crisis was precipitated largely by lax credit standards. and the adjustment process may continue to cause headwinds for the recovery. The mix of business investment has shifted from residential and structures toward equipment and software. and explains the Administration’s initiatives for addressing many of the interlinked housing market problems. rebalancing in the economy is required so that the gains of economic growth provide more opportunity for the middle class and those struggling to get into the middle class. excessive debt. about 2. Rebalance. In September 2011. unemployment rate rose by 5. the President presented his proposals for Wall Street reform. More rebalancing is needed. government balance sheets need to shift by both cutting unnecessary spending and raising revenue to continue needed investments in the future.1 percentage points from the last quarter of 2007 to the fourth quarter of 2009. Finally. and build a foundation for sustainable growth. President Obama submitted a balanced plan to the Joint Select Committee on Deficit Reduction that would have reduced the deficit by $4 trillion over 10 years with a mix of spending cuts and additional revenue. Progress is being made on rebalancing the sources of economic growth as well.Although still a large increase relative to previous postwar recessions.

The new law will also begin to lower the rate of health care cost growth. the Federal Government was generating budget surpluses. Chapter 3 details how Federal debt shifted sharply from a downward to an upward path to reach today’s unsustainable heights. Accomplishing this goal will require a Federal Government that lives within its means and makes targeted cuts to government spending while maintaining essential safety net services. and out-build the rest of the world.5 trillion in further reductions scheduled to follow. Since 2001. and what the options are for reducing the long-term debt. highspeed rail. Federal debt has been growing unsustainably. In cities and towns throughout America. increasing the commitment to research and technology. and infrastructure are an essential down payment on the future. as well as actually paying down the national debt. the unfunded Medicare prescription drug benefit. and building new roads and bridges. and high-speed Internet. innovation. In his Fiscal Year 2013 Budget. increased military operations. Restoring Fiscal Responsibility In the late 1990s. Rebuilding a Stronger Economy President Obama has emphasized that the United States can outeducate. and slow job and economic growth. Investments in education. the longterm Federal debt must be reduced. the President has proposed a balanced approach that recognizes the need to prioritize spending initiatives while aligning revenues with current spending. Additionally. clean energy. primarily as a result of the 2001 and 2003 tax cuts that were skewed toward the wealthiest. out-innovate.2 trillion to $1.  But it will also require continuing to invest in the Nation’s future—training and educating workers. improvements in K–12 education and greater access to postsecondary education will provide more opportunity for middle-class families and those struggling to get into the middle class.by the landmark Affordable Care Act. both annually and throughout the 10-year budget window. Although safety net stabilizers and job creation measures in the short term are important to keep the recovery gaining momentum. Recognizing the economic risks associated with increased budget deficits. These investments today will be the foundation of long-term output and employment growth in the 30 | Chapter 1 . the benefits of these investments are clear. the Administration and Congress agreed on a $1 trillion deficit reduction package in the Budget Control Act of 2011—with an additional $1. which will provide premium assistance tax credits for those without access to affordable health insurance to obtain coverage.

in part. The chapter discusses the President’s job creation proposals and the key role they can play in supporting job growth in the near term. As emphasized. and to prepare Americans of all ages for the jobs of the future. the Nation should not overlook those factors that contribute to well-being even if they are not fully captured in economic statistics. the economy lost nearly 4 million manufacturing jobs.future. 400. The goals of current policies are twofold: to increase job growth in the near term. Jobs and Income: Today and Tomorrow Problems that were building in the labor market for well over a decade were amplified by the Great Recession. with the private sector. One notable long-term trend that can be stopped is the sharp decline in manufacturing jobs. health. The auto industry was central to the rebound in manufacturing: although the auto industry accounts for only 6 percent of industrial production. The Federal Government has to live within its means to make room for things it absolutely needs. To Recover. to the President’s efforts to rescue the American auto industry. accelerate. Another 2 million manufacturing jobs were lost during the 2007–09 recession. Chapter 6 explains where the labor market is today and distinguishes between the effects of the recession and longer-term trends in employment and income that predated the recession. Measured GDP growth is not the only contributor to the quality of life that Americans seek to enjoy. That is why President Obama urged Congress to find common ground so that government policies can. Rebalance. without jeopardizing essential safety net programs or the ability to make investments for the future. and Rebuild | 31 .000 manufacturing jobs have been added in the past two years. not impede. a number of companies have indicated that they are bringing jobs back to the United States because of the Nation’s high productivity and growing cost advantages. From 2000 to 2007. The President has laid out a bold agenda to support this trend and to encourage more manufacturing production at home. Thanks. In fashioning long-term policies. manufacturing companies have been adding jobs for the first time since the late 1990s. the Nation can afford these investments only by getting its fiscal house in order. robust wage growth for all Americans. and improvements in the quality of life. and environmental quality. as these positions migrated overseas. economic growth and sharpen America’s competitive edge in the world. it is responsible for 23 percent of the increase in industrial production since the end of the recession. On net. As discussed in Chapter 5 and Chapter 6. Government investments as well as regulatory policies can improve well-being by correcting market failures and protecting safety.

The President has already reformed health care to give millions more Americans access to care and to 32 | Chapter 1 . The United States has a comparative advantage in high-technology. Yet while the benefits of education have grown. As shown in Figure 1-4. the growth in the relative share of college-educated American workers has slowed since 1980 (Goldin and Katz 2008). and the President has set a goal for the United States to have the highest share of 25. the average earnings of college-educated workers has risen to a level twice as high as that of workers with only a high school diploma. economy. And the unemployment rate of college graduates is about half of the national average. Chapter 7 describes this changing landscape and the steps the Administration has taken to modernize the safety net for a more dynamic economy and more mobile workforce.to 34-year-olds with a college degree of any country by 2020. In the last few years. making higher education more affordable. Preserving and Modernizing the Safety Net The recession highlighted the need for a strong safety net as millions of Americans. innovative sectors. Thus.S. for example. but jobs in such sectors require a highly skilled workforce. Cars. advanced manufacturing products can become an even more important segment of the U. are now a highly advanced product: fully 30 percent of the value of many automobiles is derived from computer software. As technology changes.Investments in education will build on America’s highly productive workforce and are essential to prepare today’s children for the jobs of tomorrow. and improving job training programs. In addition to cushioning the shock of income loss. lost their jobs and saw their savings decline. the safety net has not always adapted with it. Chapter 6 lays out the strides the Obama Administration has made in bettering the education system at every level. Increasing educational attainment for low-income children would substantially improve their chances of moving up the rungs of the ladder of opportunity. they will have access to a minimum level of support. and intellectual property. however. according to industry estimates. As the economy has undergone major changes. through no fault of their own. Making sure American workers have the right set of skills is also critical for a revival of manufacturing jobs and jobs in other high-paying sectors. electronic components. there has been an increase in school enrollment. the President’s education and job training strategy is a necessary complement to proposals to strengthen the manufacturing sector. safety net programs are important for long-term growth because they help maintain consumer demand in a downturn and make it easier for entrepreneurs to take risks. knowing that if they fail.

3 1963 1972 1981 1990 1999 2008 Source:    CEA  calculations  using  March  Current  Population  Survey  data  for  workers  aged   25–65  who  worked  at  least  35  hours  a  week  and  for  at  least  50  weeks  in  the  calendar  year.   Before  1992.9 1.8 1.  groups  are  defined  based  on  the  highest  degree  or   diploma  earned. but smart regulations have also enabled Americans to live longer.4 1.Figure  1-­4 Earnings  Ratio:  College  Degree  or  More  to  High  School  Degree. Government investments in innovation and infrastructure and smart government regulations improve the quality of life and help the economy to operate more efficiently. The President has reduced burdensome regulations. Rebalance.7 1.   1963ʹ2010 Ratio 2. He has also called for the largest changes to the unemployment insurance program in 60 years and proposes to improve retirement preparedness by broadening the reach of individual retirement accounts.0 1. bring down costs. As discussed in Chapter 8.6 1. infrastructure.  Calculations  are  based  on  survey   data  collected  in  March  of  each  year  and  reflect  average  wage  and  salary  income  for  the   previous  calendar  year. and promoting financial literacy.  education  groups  are  defined  based  on  the  highest  grade  of  school  or  year  of   college  completed.  Beginning  in  1992. and more productive lives.  Earnings  are  deflated  using  the  CPI-­U. Improving the Quality of Life through Smart Regulation. where possible. Innovation. simplifying financial decisions for retirement savers and retirees.1 2. the Obama Administration has made significant reforms to the regulatory system to To Recover.5 1. and Rebuild | 33 . and Public Investment Rebuilding the American economy entails investments in the foundations of economic growth—education. and research and development. Clean Energy. healthier.2 2.

This past year has seen remarkable progress toward reaching many of these energy goals. A strong infrastructure system. Similarly. Technological breakthroughs improve the quality of life in ways that are not fully captured by measures of economic activity. because of the 34 | Chapter 1 . “The United States of America cannot afford to bet our long-term prosperity and security on a resource that will eventually run out. increasing leisure time and improving well-being. facilitates shorter commuting times. Ensuring that America has abundant clean energy to power the economy of the future is also a prerequisite for raising the quality of life and enhancing the Nation’s security. At the same time. In 2011. Meanwhile. for example. While actions taken to prevent a deeper recession and to strengthen the recovery have made a difference. economy has been expanding for two and a half years. Conclusion The U. Families are now paying down debt. which is restraining consumption and economic growth. Cellular telephones. a comprehensive strategy that focuses on three key areas: developing and securing America’s energy supplies.” The Administration laid out a Blueprint for a Secure Energy Future.better measure relevant costs and benefits and to establish a review process that will result in continual improvement of the regulatory architecture. investments in infrastructure improve productivity but also have other. the Administration has advanced common-sense new standards to ensure the safe and responsible development of these resources. the Nation is still recovering from that profound crisis and the problems that led to it. many families borrowed to support their consumption and to buy houses that later fell in value. even larger benefits. President Obama noted that. including oil and natural gas. providing consumers with choices to reduce costs and save energy. Because household income for vast swaths of the middle class had stagnated. Early in 2011.S. A focus on quality of life also emphasizes public investments in innovation and infrastructure. and innovating our way to a clean energy future. The economic challenges that the United States faces are the direct result of problems that took years to build up and that came to a boil in the financial and economic crisis of 2007–09. generate large increases in convenience that benefit consumers without being fully captured in measures of GDP. but the pace of economic growth and job growth has not been fast enough given the deep hole that was created by the sharp recession that started at the end of 2007. domestic oil production was the highest it has been in the past eight years and natural gas production reached an all-time high. for example.

innovation. And the government budget moved from surplus and debt reduction at the end of the 1990s to deficit and increasing debt in the early 2000s. and construction workers had a 16. builders have been reluctant to build new homes. clean domestic energy. or regulations. Rebalance. To economists. while pursuing credible policies to return to a fiscally sustainable path in the intermediate and long term and investing more in education. as the priorities in Washington at that time shifted to increased spending to prosecute two wars while cutting taxes in a skewed and inefficient way. the solution to these problems is clear: the Nation needs to raise demand for its goods and services in the short run to strengthen and sustain the economic recovery and put more people back to work.4 percent unemployment rate in 2011. research and development.collapse of the housing boom. To Recover. taxes. and Rebuild | 35 . and infrastructure to raise long-run growth and expand the middle class. These are the Nation’s principal economic challenges. not uncertainty about economic policies.

.

As severe as the recession was. has now grown in each of the past 10 quarters. systemic financial crises in various countries 37 . The destruction of household wealth during the financial crisis and the deep recession that followed appears to have restrained the growth of consumption during the recovery.S. To put the current U. economy continued to recover in 2011 from the deep recession that began at the end of 2007. a reflection of soft demand since the recession as well as the vast amount of overbuilding of houses during the years leading up to the crisis. However.S. the level of unemployment remains too high. this chapter presents an overview of the influential work by Charles Kindleberger (1978) and Carmen Reinhart and Kenneth Rogoff (2009). about in line with the recovery from the 1991 recession and faster than the recovery from the 2001 recession. who argue that recessions associated with financial crises are typically deeper than normal downturns and that the recoveries that follow tend to take longer. In the third quarter of 2011. as measured by gross domestic product adjusted for changes in prices (real GDP). Growth in other components of demand. and the private sector created more than 3 million new jobs in 2010 and 2011. Employment continued to expand in 2011. the drop in U. recovery in historical and international context. and in some cases has been even stronger than average.C H A P T E R 2 THE YEAR IN REVIEW AND THE YEARS AHEAD T he U. Investment in new residential construction also remains much weaker than in typical recoveries.S. has followed trajectories more typical of business-cycle recoveries. such as business investment and exports. The real value of goods and services produced in the economy. particularly in services. real GDP after the financial crisis of 2008 was smaller than the average decline in recessions associated with other severe. and the pace of the recovery in output and employment would in all likelihood be faster if it were not for the lingering effects of the financial crisis. real output surpassed the level last reached at the business-cycle peak in the fourth quarter of 2007.

as households continued to pay down debt and growth in nominal income slowed. The price 38 | Chapter 2 . Nonfarm private payroll employment expanded by 2. An Economy in Recovery: Key Events of 2011 Real GDP rose 1. and purchases of durable goods—such as motor vehicles—rose at a robust pace.S.3 percent (Figure 2-1). and global demand for U. credit conditions continued to improve. with a modest uptick toward the end of the year. investment in equipment and software posted solid gains in 2011. the rise in U. Output expanded at an annual rate of only 0. In the household sector. like that in real output. Spending by State and local governments was also severely restrained in 2011 by tight budgets. The collapse of Libyan crude oil production during that nation’s revolution caused world oil markets to tighten near the beginning of the year. real GDP growth picked up to an average annual rate of 2. Much of the weakness in these areas can be tied directly to the financial crisis and the problems that precipitated the crisis.6 percent over the four quarters of 2011 after having risen 3. economy.8 percent in the first half of the year. economy. exports supported job creation in 2011 as well as the continued expansion of manufacturing output. As noted.1 percent in 2010. Similarly. and it peaked earlier. The growth in U. from 9.S. but demand for new housing remained weak. when a series of shocks—among them a sharp rise in the price of oil due to turmoil in the Middle East—appeared to reduce consumer and business sentiment and dampen economic activity. The unemployment rate fell over the course of the year. and then to 8. Payrolls expanded moderately near the beginning of the year.over the past 40 years.S. growth in consumption remained somewhat restrained. A Series of Global Shocks and Revised GDP Data. As of January 2012. In the business sector. however. the unemployment rate has fallen by 1. The recovery in payroll employment.S. unemployment was less extreme than the average experience following these financial crises.5 percent in December 2011. was uneven over the months of 2011. A succession of global shocks turned 2011 into a turbulent year for the U. Households continued to work down debt in 2011.4 percent in December 2010 to 8. goods and services was strong.1 million jobs during the twelve months of 2011. but job creation slowed in the spring and summer before picking up again in the fall. Conditions in residential real estate markets continued to stabilize in 2011. having added 1. This chapter also reviews the developments of 2011 for individual sectors of the U.S.3 percent in January 2012.3 million jobs in the last 10 months of 2010. As the effects of the transitory shocks waned in the second half of the year.7 percentage points since peaking in October 2009.

The $23 per-barrel increase led to higher gasoline prices. In the United States. Consumers appear to have reacted with a combination of reduced spending on other goods and services and a lower saving rate than might otherwise have been the case.8   0.8   2.  2007–2011             Percent  change  (annual  rate)   6 3. In the summer.4   0 -­2 -­4 -­0. motor vehicle production fell 21.7   2011:Q4   -­1. global supply chains in some industries faced shortages of key parts.9   3.S.8   -­3. vehicle assembly plants were forced to cut production when supplies of critical parts produced in Japan became scarce.6   4 2 3. eroded the real purchasing power of disposable personal income by more than $50 billion at an annual rate. and dampened consumer confidence.7   1.   Source:  Bureau  of  Economic  Analysis. when an earthquake struck northeastern Japan and set off a tsunami.9   2007:Q1 2008:Q1 2009:Q1 2010:Q1 2011:Q1 Note:  Shaded  area  represents  recession.7   -­8.7   1. a disaster that resulted in a devastating human toll and required a massive rebuilding effort.3   1.     refiners paid for crude oil rose from an average of $78 a barrel in the second half of 2010 to $101 a barrel in the first half of 2011. The 2 percentage point cut in the payroll tax for workers that President Obama proposed and the Congress passed near the end of 2010 helped offset the impact of higher oil prices. As a result. U. concerns mounted over sovereign debts and financial institutions in Europe and the likelihood of a global slowdown in economic The Year in Review and the Years Ahead | 39 .5   2.8   3.0   1.5   2. Economic activity across the globe slowed because damage to Japan’s electrical grid disrupted industrial output throughout the country.Figure  2-­1   Real  GDP  Growth  by  Quarter.8   3.  National  Income  and  Product  Accounts.2 percent at an annual rate in the second quarter before rebounding in the third and fourth quarters.7   -­6 -­8 -­10 -­6. Another supply shock hit the world economy in March 2011.3   0.3   1.

S. In the absence of this legislation. The downward change of 5.2 million and 4. 40 | Chapter 2 . Supportive policies enacted near the end of 2010—the Tax Relief. In addition. real GDP released by the Bureau of Economic Analysis (BEA) in July 2011 revealed that the 2007–09 recession was more severe than had been originally reported. and Job Creation Act (TRUIRJCA)—cushioned the adverse shocks experienced in 2011. Because the legislative package was constructed to be temporary (including mostly one.0 to 2. which had been designed to be strongest during 2009 and 2010. but its July 2011 revised estimate showed an 8. to 2.8 percent in the fourth quarter of 2008 and the first quarter of 2009. as measured in the National Income and Product Accounts. the sharpest two-quarter contraction since quarterly GDP data began being collected in 1947. although its effect. Unemployment Insurance Reauthorization. and tax cuts totaled $117 billion.and two-year provisions). real GDP growth over the four quarters of 2011 would have been lower by 0. relative to what it otherwise would have been.8 percentage points. The change to the estimate for the fourth quarter of 2008 was particularly stark. enacted in early 2009 when real GDP was contracting at an annual rate of more than 6 percent and employment was falling by more than 700.9 percent rate of contraction. was gradually declining. Real GDP fell at an average annual rate of 7. The BEA also revised down the average annual rate of growth during the recovery (from the second quarter of 2009 through the first quarter of 2011) by 0.9 percent and raised employment by between 2. it had little effect on the long-term deficit. by 2. The Council of Economic Advisers (CEA 2011) estimates that the Recovery Act increased GDP as of the second quarter of 2011. The BEA originally estimated that output contracted at an annual rate of 3. Policy Developments in late 2010 and 2011. The CBO and outside analysts have also presented estimates in this range. Provisions in the legislation included a 2 percentage point reduction in workers’ payroll taxes and a continuation of the extended and emergency unemployment benefit programs through the end of 2011. In 2011.8 percent that quarter.9 to 2. The American Recovery and Reinvestment Act (Recovery Act).growth. also continued to support the level of real GDP in 2011. the contentious debate in Congress over raising the statutory debt ceiling kept financial markets on edge and appeared to weigh on equity markets over the summer and fall. obligations.000 jobs a month. Recovery Act–related outlays. down from $350 billion a year earlier.1 percentage points was the largest downward adjustment to the quarterly data ever reported. according to the Congressional Budget Office (CBO 2011b).2 percentage point. In addition.6 percent.2 million jobs. revised estimates of U.

In November. 2011. with the Federal Open Market Committee (FOMC) maintaining a target range for the federal funds rate of 0 to 0. The CBO (2011a) estimated that revenue raisers recommended by the President in September would have more than offset the cost of the proposed tax cuts and investments. the American Jobs Act would not have added to the long-term Federal Budget deficit.3 million to 1. And. Before a joint session of Congress on September 8. and eliminating certain tax provisions for oil and gas production companies. in the waning days of 2011. Monetary policy remained accommodative throughout the year. During the first half The Year in Review and the Years Ahead | 41 . The President has called on Congress to extend these policies for the entire calendar year. The full American Jobs Act did not pass Congress in the form that the President proposed. the President proposed the American Jobs Act to strengthen the current recovery and spur the creation of new jobs.600 to businesses that hire veterans who have been unemployed for more than 26 weeks and $9.In 2011. the President kept pressing for measures to support economic growth and job creation and will keep doing so until every American looking for work can get a job.000 cumulative job-years of employment by the end of 2014 as these benefits are spent. the President won enactment of one element of the American Jobs Act: a new tax credit for America’s veterans that provides up to $5. the President signed into law a 2-month extension of the 2 percentage point reduction in workers’ payroll taxes and of the emergency and extended unemployment insurance programs. The American Jobs Act incorporated a number of proposals that some independent economists estimated could have boosted payrolls by 1. Policy actions by the Federal Reserve also supported the recovery in 2011. The full-year extension of unemployment insurance programs would prevent 5 million unemployed workers from exhausting benefits this year and help support the equivalent of about 500. Macroeconomic Advisers 2011).25 percent.600 for businesses that hire a veteran with a service-related disability. the Administration proposed additional steps to strengthen and sustain the economic recovery in the wake of world events that posed increasing risks to growth. Those initiatives were mostly paid for by an increase in guarantee fees charged to lenders by Fannie Mae and Freddie Mac.9 million jobs by the end of 2012 (for example. taxing carried interest earned on private equity and hedge fund investments at the same rate as ordinary income. Specifically. The extension of the payroll tax cut for the rest of 2012 would help approximately 160 million full-time and part-time workers and provide a typical worker with an additional $40 in each bi-weekly paycheck. Nevertheless. the bill proposed limiting deductions and exclusions for upper-income taxpayers. Equally important.

enough to recoup the 5.2 percent. dollar liquidity swap arrangements with a number of foreign central banks in June and again in November. In January 2012.1 An Economy in Recovery: The Lingering Effects of Financial Crises The 2007–08 financial crisis and the drop in economic activity during the recession were unprecedented. in part. so the Fed is not exposed to any currency risk resulting from the transaction. 42 | Chapter 2 . the Federal Reserve completed the program first announced in November 2010 under which it purchased $600 billion of longer-term Treasury securities. real U. The exchange rate used for the transaction is based on the market exchange rate at the time of the transaction.1 percent loss of real output recorded during the recession.S. The swap is unwound at the same exchange rate. The FOMC took steps in the second half of 2011 and in the early part of 2012 to further ease conditions in financial markets and to provide additional support to the recovery.” In June. A major reason that the rate of real GDP growth has not been faster during the current recovery involves the lingering effects of the financial crisis. and the subsequent recoveries take longer. As argued by Kindleberger (1978) and Reinhart and Rogoff (2009). Hall (2010) and Woodford (2010) argue that recessions around financial crises are worse. although private employment has grown at a faster pace than in the 2001 recession. GDP has risen 6. the FOMC continued to advise that economic conditions were “likely to warrant exceptionally low levels for the federal funds rate for an extended period. The committee voted at its September 2011 meeting to extend the average maturity of the Federal Reserve’s holdings of Treasury securities in order to lower longer-term interest rates. In the statement released following its August 2011 meeting. In the two and a half years that have elapsed since the official end of the recession. 1 The Federal Reserve receives collateral in the form of foreign currency during the life of the transaction.of the year. the FOMC said that it expected economic conditions to warrant exceptionally low levels for the federal funds rate at least through mid-2013. the FOMC approved an extension of the temporary U. the committee extended this period until at least late-2014. recessions linked with financial crises tend to be deeper than other recessions. and the FOMC maintained its policy of reinvesting principal payments from its holdings of debt and mortgagebacked securities issued by Fannie Mae and Freddie Mac. In response to the escalation of the sovereign debt crisis in Europe.S. The pace of GDP growth during the recovery has been almost the same as the rates of growth observed during the recoveries that followed the 1991 and 2001 recessions (Figure 2-2).

S. instead of rising. The slower recovery in consumer spending may partly reflect the sharp losses in household net worth caused by the financial crisis and the high levels of consumer The Year in Review and the Years Ahead | 43 . Real residential investment. exports have risen at a robust pace and have exceeded their average rate of growth in the preceding eight recoveries.S. economy are recovering at a moderate pace. recovery. In the current recovery. and Wilson 2011). Personal consumption expenditures have risen more slowly in the current recovery than in the average U. Business fixed investment has been about as strong in the current recovery as in the average U. in contrast. as noted by Reinhart and Rogoff (2009) and IMF (2009).;  CEA  calculations. on balance.S.     because the critical intermediation role played by the financial sector is disrupted. during the current recovery. In addition.  National  Income  and  Product  Accounts. Some sectors of the U. temporarily reducing the volume of world trade and restraining growth of output during the recovery.Figure  2-­2   Real  GDP  During  Recoveries   Indexed  to  100  at  NBER-­defined  trough   112 110 1991   108 2001   106 Current     (2009:Q2  trough)   104 102 100 98 96 94 92 90 -­12 -­10 -­8 -­6 -­4 -­2 Trough 2 Quarters  from  trough   4 6 8 10 12 Source:  Bureau  of  Economic  Analysis. Housing slumps are also typically associated with slower growth during recoveries (Howard. whereas this type of investment in a typical U. while growth in other sectors continues to be restrained by the lingering effects of the financial crisis. real U. real expenditures by State and local governments have continued to decline. as they had in every other postwar recovery. Financial crises also tend to spread across countries. recovery would have increased roughly 34 percent over a comparable period.S.;  National   Bureau  of  Economic  Research. recovery. had barely returned to its level at the business-cycle trough by the very end of 2011. Martin.S.

The breadth and speed of the emergency economic recovery measures that were put in place to address the financial and economic crisis.S. After the collapse in house prices destroyed large amounts of household net worth.debt—including mortgage debt—taken on during the period leading up to the financial crisis.3 percent. If the United States had followed the path of the average country during a financial crisis recession. was about 10 percent shorter than the average. The duration of the recent U.S. Figure 2-3 compares the depth and duration of the 2007-09 recession in the United States with 14 recessions including the 1929 downturn in the United States. and well below the average decline of 10.9 percent at an annual rate in the last quarter of 2008.2 percent. a group of recessions categorized by Reinhart and Rogoff (2009) as occurring near major systemic banking crises.S. and the bars on the right report the length of each recession. the U. 44 | Chapter 2 . Figure 2-4 compares the rise in the unemployment rate in the United States between the fourth quarter of 2007 and January 2012 with the average rise in unemployment following the business-cycle peaks for the 14 financial crises shown in Figure 2-3. downturn. as well as extraordinary actions by the Federal Reserve Board. This was the biggest drop in U. the figure shows that the cumulative decline in GDP was 5. the unemployment rate would have been 10. but then it peaked and declined over the next two years—an outcome less severe than the average rise in unemployment around other financial crises. are the main reasons why the economy avoided a steeper and more prolonged decline.S. unemployment rate rose more sharply than the average cumulative rise over the first 8 quarters after these business-cycle peaks.1 percent during the recession. which measured six quarters. recession in international and historical contexts. systemic banking crises included in Reinhart and Rogoff (2009) Table 14-3. GDP reached as high as 8. households have reduced their consumption as they work down debt taken on before the crisis.2 The horizontal bars on the left of the figure refer to the decline in real output measured in each of the recessions. While the drop in real U. To put the 2007–09 U. The analysis here differs from Reinhart and Rogoff (2009) in that we use seasonally adjusted quarterly real GDP rather than annual real GDP per capita. measured as the number of quarters between the peak and trough of real output. output during any business-cycle contraction since the Great Depression. with growth returning by the middle of 2009.4 percent in January 2012 instead of 8. 2 The crises shown in Figure 2-3 are the major. including the Recovery Act and Financial Stability Plan. Between the fourth quarter of 2007 and the fourth quarter of 2009. although it was less drastic than the declines in output experienced in most other financial crises.S.

 U.8   5   Average  14 -­10.  World  Economic   Outlook  (2010)  and  data  from  authors.9   15   United  States  (1929:Q3) -­30.8   4   South  Korea  (1997:Q3) -­8.9   8   Indonesia  (1997:Q4) -­17.3   3   Hong  Kong  (1997:Q3) -­8.  Colombia.  and  data  from  authors.Figure  2-­3                                                                 Real  GDP  in  Recessions  Associated  with  Financial  Crises   Duration  of  downturn     (quarters)    Percent  decline   peak-­to-­trough         -­0.;  national  sources.;  International  Monetary  Fund.S.  "Average  14"   excludes  current  U.     The Year in Review and the Years Ahead | 45 .  business-­cycle   peaks  are  defined  by  the  National  Bureau  of  Economic   Research.  and  Thailand  are  based  on  annual  data.   Figure  2-­4   Unemployment  Rate  Increases  in  Recessions     Associated  with  Financial  Crises   Percentage  point  change  from  business-­cycle  peak   6 5 Average  14   4 United  States     (2007:Q4-­2012:Q1)     3 2 1 0 0 2 4 6 8 10 12 14 Quarters  after  business-­cycle  peak   16 18 20 Note:  "Average   14"  shows  the  average  rise  in  the  unemployment   rate  in  each  quarter  after  the  business-­cycle  peaks  identified  by  Reinhart   and  Rogoff  (2009)  as  being  associated  with  major.  The  2012:Q1   value  for  the  United  States  is  through  January  2012.  International  Financial   Statistics.   Source:  Reinhart  and  Rogoff  (2009).  systemic  financial  crises.6   -­30 14   -­25 -­20 -­15 -­10 -­5 0 5 10 15 20 25    0                        10                          20   Percent  decline   Duration  in  quarters   Note:  Financial  crisis  dates  are  from  Reinhart  and  Rogoff  (2009).7   -­35 6   Sweden  (1990:Q1) -­5.  Malaysia.S.  World  Economic  Outlook  (2010).;  National  Bureau  of  Economic  Research.  cycle.  Financial  crises  are  shown  in  Figure  2-­3.4   -­1.  and  the  business   cycles  of  other  countries  refer  to  the  peaks  and  troughs  of  real  GDP.2   -­1.  and  the  business-­cycle  peaks  of  other  countries  refer  to  the  peaks  of  real   GDP.;  CEA  calculations.  U.;  International  Monetary  Fund.8   4   Argentina  (1998:Q2) -­19.;  Moore  (1961).;  National  Bureau  of  Economic  Research.  Quarterly  unemployment  rates  for  Argentina.8   -­5.  Indonesia.2   3   Finland  (1990:Q1) -­12.S.2   6.7   13   Thailand  (1996:Q3) -­14.6   -­2.6   Malaysia  (1997:Q4) -­11.;  national  sources.;  Gordon  and  Krenn  (2010).1   Spain  (1978:Q2) 3   Philippines  (1998:Q1) 3   Japan  (1993:Q1) 3   Norway  (1988:Q1) 3   United  States  (2007:Q4) 12   Colombia  (1998:Q2) -­6.;  CEA  calculations.   Source:  Reinhart  and  Rogoff  (2009).  business   cycles  are  defined  by  the  National  Bureau  of   Economic  Research.

Developments in 2011 and the Near-Term Outlook Consumption and Saving Consumer spending—a category that makes up about 70 percent of GDP—rose moderately in 2011. Several key developments in 2011 shaped the contours of consumer spending.S. the growth rate of real consumer spending picked up in the third and fourth quarters to an average annual rate of 1. economy began to grow again in the second half of 2009. and the labor market continued to recover. Partly reflecting these shocks. Rather than plunging into what many think could have been a second Great Depression. in the face of upheavals at the beginning of the year. The disturbances that slowed consumption growth in the early part of the year proved transitory. a somewhat slower pace of growth 46 | Chapter 2 .9 percent during the four quarters of 2011. and by the fourth quarter. and the extraordinary and exigent actions taken by the Federal Reserve had sizable. which offset oil price shocks early in the year and supported household consumption. As a result. production (and availability) of motor vehicles had returned to levels that prevailed before the earthquake in Japan disrupted supply chains. Household Income in 2011. and unemployment started to come down sooner and swifter. Nominal personal income grew 3. the 2007–09 recession was shallower and shorter in duration than the average recession experienced by a country after a major financial crisis. oil prices stabilized over the summer. and the contentious debates held in Congress over raising the statutory debt ceiling unsettled equity markets. however. Gains over the year were uneven.S. household liabilities fell relative to income. and their effects dissipated in the second half of the year. The stock market and consumer confidence both fell in the third quarter before rebounding in the fourth quarter and early 2012.4 percent in the first half of 2011.According to analysis by the Congressional Budget Office and privatesector forecasters. The slowdown in spending growth would have been more severe in the absence of the workers’ payroll tax cut. the U. the Recovery Act. Concerns about the weakening pace of growth in several industrialized economies—most notably in Europe—escalated during the summer. however. GDP and employment in 2009. real consumer spending rose at an annual rate of only 1. Despite these headwinds.9 percent. as credit conditions continued to ease. positive effects on U. The second half of 2011 brought new challenges. the Financial Stability Plan. having increased more than 3 percent at an annual rate in the second half of 2010.

for example) Figure  2-­5   Consumption  and  Wealth  Relative  to     Disposable  Personal  Income  (DPI). a one dollar drop in wealth tends to reduce annual consumer spending by about two to five cents.95 Years  of  disposable  income   7 2011:Q3   Consumption-­to-­DPI  ratio  (left  axis)   5 4 2011:Q4   0.  1952–2011   Consumption/DPI  ratio   1. depicted in Figure 2-5. on balance.;  Federal   Reserve  Board.than in 2010.00 0. As noted. tax policies passed near the end of 2010 helped cushion some of the effects of these price increases on consumers while providing an additional boost to income.10 1.05 6 Total-­wealth-­to-­DPI     ratio  (right  axis)   1.5 percent in the year-earlier period. Household Wealth and Saving in 2011.75 1952 1960 1968 1976 1984 1992 2000 2008 Source:  Bureau  of  Economic  Analysis.   The Year in Review and the Years Ahead | 47 .;  CEA  calculations.80 2011:Q3   0 0. which appeared to have passed through to the prices of some other goods and services as well. since the beginning of 2009. As a rule of thumb.1 percent over the four quarters of 2011 after having risen 3.85 3 Stock  market     wealth-­to-­DPI     ratio  (right  axis)   Net  housing     wealth-­to-­DPI  ratio     (right  axis)   2011:Q3   2 1 0. Growth in nominal personal income was held down in 2011 by a slowdown in job growth near the middle of the year. The Administration seeks to extend the workers’ payroll tax cut in 2012 and to provide additional immediate support for aggregate demand through the continuation of extended unemployment insurance benefits and other measures initially proposed in the American Jobs Act. declined in the third quarter of 2011 after rising.1. The wealth-to-income ratio. edged down 0. The consumption rate (shown in the figure as the share of disposable income consumed) tends to fluctuate with the wealth-to-income ratio. which is personal income less personal taxes and adjusted for price changes. Real disposable personal income. although the source of the wealth change (housing or equities.90 0.  National  Income  and  Product  Accounts.  Z. The purchasing power of wages and salaries was curtailed somewhat in 2011 by a run-up in food and energy prices in the first half of the year.

The decline in the wealth-to-income ratio from the second quarter of 2007 to its low point in the first quarter of 2009 amounted to 1. about the same rate as in 2010 but below the average rate of about 6 percent observed in the first half of 2009.7 percent.8 years). As a consequence. a decline from the first half of 2011 that may have partially reflected the pick up in purchases of consumer durables. Purchases of new motor vehicles. 1. The personal saving rate fell in the second half of 2011 to 3. a drop in wealth of this magnitude could be expected to reduce personal consumption expenditures by about 6. Households continued to work down their debt through the third quarter of 2011 (the latest data available as this report goes to press). The drop in the wealth-to-income ratio over this period was the deepest sustained decline since 1952. As the Congressional Budget Office recently noted. the personal saving rate appears roughly consistent at current levels with household wealth. the top 1 percent of families had a 278 percent increase in their real after-tax income from 1979 to 2007. Equity prices fell during the summer of 2011 before regaining most of the losses toward the end of the year. Driven in part by the rise in uncertainty during the debt ceiling debate as well as external events in Japan and Europe. barring a dramatic change in asset prices.1 years were lost from the decline in stock market wealth. the very top income earners 48 | Chapter 2 . (In other words. especially new vehicles. further increases in household purchases of durable goods. when these data began to be compiled. are counted as a consumption outlay in the National Income and Product Accounts even though households view these purchases as investment. The personal saving rate—expressed in the National Income and Product Accounts as a share of disposable personal income—fluctuated around 5 percent for the first half of 2011. may reduce the saving rate temporarily. household wealth declined by the amount of income earned in 1. Looking ahead. Even so. while some further drops in the saving rate are possible. All told. and so a rise in vehicle purchases reduces the personal saving rate.8 years of income.6 year from net housing wealth. and about 0. while the middle 60 percent had an increase of less than 40 percent.8 percent. Of the total decline.also may matter. consumer sentiment also dropped to low levels in the summer before partially rebounding toward year’s end. the growth rate of real consumer spending in the years ahead would be expected to largely mirror the growth rate of income. Some of the recent patterns in aggregate spending and saving behavior—including the sluggish growth in consumer spending—may reflect the sharp rise over the past 30 years in the inequality in the income distribution in the United States. As a result of these trends. perhaps reflecting pentup demand for motor vehicle purchases that were deferred during the recession.

a measure that differs from the personal saving rate reported in the National Income and Product Accounts.5 percent.have pulled much further ahead of everyone else. (See Chapter 6 for a discussion of shifts in the income distribution. the share of income spent on luxury goods and services. from 10 percent to 23. but one study (Dynan. in part. 2010). The Year in Review and the Years Ahead | 49 . Several authors have argued that increases in inequality have likely adversely affected the economy. and Zeldes 2004) implies that the top 1 percent of households save about half of their total current income. Kaldor (1956) provides some early research in this area.4 This finding implies that if another $1. aggregate consumption may not have been reduced by a full 5 percent because the dramatic shift in the income distribution likely led many households to accrue more debt. because the marginal propensity to consume is not well established for the extreme upper end of the income distribution.5 percentage points. to the rising levels of debt and the overleveraging that played a central role in the 2007–08 financial crisis.2 trillion of annual income in 2007. and this gap has widened over time (Aguiar and Bils 2011). For example. relative to necessities. while the population at large has a saving rate of about 10 percent of their total income. There are many caveats to this calculation. Raghuram Rajan (Rajan 2010) argues that slow income growth for the middle class led.) The effects of this dramatic shift in the income distribution on aggregate demand are hard to document. As shown in recent research by Piketty and Saez (2003. In addition. between 1979 and 2007. rising by 13. 5 Note that the increase in leverage by the middle class may explain why the aggregate saving rate did not rise despite the shift in income to high savers.3 For example. such as food. because the highest income earners typically spend a lower share of their income—at least over intermediate horizons—than do other income groups.5 3 See Rajan (2010) and Reich (2010). Skinner. is higher for high-income households than for low-income households. In his book Fault Lines. such as entertainment. although some of the spending patterns in the Consumer Expenditure Survey reveal evidence of the increasing inequality of income. Research on the saving rate (or marginal propensity to consume) of families at the very top of the income distribution is scarce. the share of all income going to the top 1 percent has risen sharply over the past three decades. This is the equivalent of about $1. The following calculation illustrates the potential magnitude of this effect. annual consumption could have been about $480 billion—or about 5 percent—higher. the rise in income inequality may have reduced aggregate demand.2 trillion had been earned by the bottom 99 percent instead of the top 1 percent of income earners. 4 The saving rate cited here refers to the change in real net worth as a share of real pre-tax income.

The decline in real household debt outstanding in the current recovery has been unprecedented. as reported in the Federal Reserve’s senior loan officer survey.7 percent over the first ten quarters of the previous eight recoveries. Other Influences on Consumption in 2011.S. Access to credit. however. whereas this type of spending grew by an average of 10. in contrast. and insurance. financial services. Household consumption of nondurable goods and services. and mortgage loans allowed the growth of purchases to outpace the growth of income for most income groups. Since the crisis. and the average consumer was left with elevated levels of debt taken on before the crisis. likely reflecting the continuing effects of 50 | Chapter 2 . are likely to have a greater impact on consumption and aggregate demand than alternative measures. household consumption of durable goods. The level of overall household debt fell in 2011. Real consumer spending on services has increased only 2. the improvement in credit availability since 2009. including items such as new and used automobiles as well as household electronics. By targeting support to a broad group of American workers—including those with a higher propensity to spend additional income—the measures the President put forward in the American Jobs Act. lending standards eased. has risen at a slower pace in the current recovery than in most previous U. For the second consecutive year. which suggests that the process of deleveraging has played a sizable role in household consumption decisions in recent years.9 percent so far in the current recovery. furniture. like the payroll tax cut and extension of unemployment benefits. but their effects on aggregate demand may have become more pronounced in the wake of the financial crisis. Reflecting. With the onset of the recession and financial crisis. recoveries. particularly for mortgages. other consumer loans. Increasing levels of debt during 1979–2007 may have masked the influence of the rising inequality of incomes on aggregate consumer spending. and consumer credit expanded modestly over the first three quarters of 2011. reflecting a decline in mortgage debt.Increases in the inequality of income have been developing for some time. in part. was severely restricted. because increased access to credit card debt. and other appliances has risen at a solid pace in the current recovery and somewhat more strongly than the rates of growth observed during the recoveries that followed the 1991 and 2001 recessions. the scope for this level of borrowing came to an abrupt end. the process of deleveraging appears to have reduced consumption below what it would have been otherwise. Consumer spending on services has been particularly weak in categories such as housing services.

however. and estimates for 2011 may be revised considerably when the Services Annual Survey is incorporated into the National Income and Product Accounts. 7 Industries counted in this figure include professional and business services. and on categories that are more discretionary.000 units in 2011. and government services. jobs in service-producing sectors accounted for about 68 percent of total nonfarm payroll employment in 2007.7 percent from the level in 2010. according to the CoreLogic home price index. such as recreation and gambling. The modest rates of growth in personal income and the tighter mortgage underwriting standards observed in recent years also kept sales and starts below their long-run trend levels. projected rates of household formation and immigration for the period 2010 through 2020 are consistent with housing starts in the range of 1.9 million units a year (Masnick. in foreclosure. employment. a period for which estimates reflect the latest annual survey. New housing starts remain well below the long-run trend in U. fell 4.S. and Belsky 2010).7 Developments in Housing Markets After posting steep declines during the 2007-09 recession. GDP and a larger share of U.6 Restrained demand for services may have implications for the labor market. Activity in the housing sector is likely to remain below these levels for some time. equal to about five months of supply at the current pace of sales. leisure and hospitality. discussed in more detail in Chapter 4. or owned by lenders in October 2011. 6 Consumption of services is more difficult to measure than is consumption of goods. Nonetheless.7 percent. activity in the housing sector remained at subdued levels in the first half of 2011 before edging up in the second half of the year. McCue. other services.S.S. an increase of 3. education and health services. Distressed sales—which include short sales and sales of properties owned by lenders (real-estate owned. House prices. or REO)—remained a headwind in 2011: CoreLogic estimates that 1. for example). According to researchers at the Joint Center for Housing Studies at Harvard University. New housing starts were about 607.6 million properties were seriously delinquent. housing demand. the pattern of weaker-than-normal growth in services consumption in the current recovery has been quite pronounced through 2010. during the twelve months of 2011. (For a discussion of the measurement of services see Data Watch 2-1. on net.the financial crisis. as new construction continues to be restrained by a sizable overhang of vacant properties for sale. because the production of services accounts for about two-thirds of U. The Year in Review and the Years Ahead | 51 .6 million to 1.) Although it is difficult to tie final consumption of a particular type of good or service to employment in that industry (the purchase of a new motor vehicle creates jobs in a number of service industries.

The 1997 NAICS added more than 149 new services industries. haircuts. The Bureau of Economic Analysis (BEA) defines services as “products that cannot be stored and are consumed at the place and time of their purchase. (Although the purchase of a newly constructed home is categorized under residential investment. the BEA has collected data on international trade in services. a process was put in place to add new industries to NAICS as they develop. the development of the North American Product Classification System. the SIC provided far more detail for goods-producing industries such as manufacturing and mining than for service-producing industries. Internet subscriptions.” Furthermore. rather than relying on “judgmental trends. normally published about 2½ months after the end of each quarter.) A major breakthrough in the measurement of service output came with the introduction of the North American Industry Classification System (NAICS) beginning in 1997 to replace the Standard Industrial Classification (SIC) system. domestic output.Data Watch 2-1: The Data Implications of the Transition to a Services-Based Economy In 1947. The QSS.S. for instance. medical consultations. The quality of the source data on the volume of service transactions also has improved over time. and apartment rents. In fact. A fundamental challenge in measuring the value of services is the disparate range of activities encompassed within the service sector.S. the Services Annual Survey and the Quarterly Services Survey both now capture 55 percent of U. the BEA estimates the amount homeowners would have had to pay to rent similar houses and classifies this imputed rent under housing services. For many years. Today. but also some less apparent things such as meals at restaurants. Since the 1980s. and the “rental value” of homeownership. allows the BEA to incorporate actual survey data on many services into its quarterly estimates of GDP. the Census Bureau has expanded the scope of its annual surveys of the service sector. however. Originally developed during the 1930s and reflecting the economy of its time. check clearing by banks. Just as important.S. gross domestic product (GDP). In 2004. services represented less than 40 percent of U.” This includes. the measurement of service activity lagged the sector’s growing importance. admission to movie theaters. the Census Bureau introduced the Quarterly Services Survey (QSS) to provide more timely data on domestic consumption of services. similarly will provide a consistent basis for categorizing the rich array of outputs produced in the growing service sector. GDP—equaling the 52 | Chapter 2 . A parallel effort carried out over the past decade. service industries account for almost 70 percent of total U.

the statistics still could and should be improved. Data on the prices of traded services are extremely limited. Although home prices in some parts of the country have stabilized.S. improvements in health care have contributed to longer life spans and better quality of life. although estimates of international trade in services are now more detailed than was the case before the 1980s. Similarly. CoreLogic estimates that more than 20 percent of homeowners with mortgages remained underwater at the end of the third quarter of 2011 (that is. Today. This has translated directly into more accurate estimates of real GDP. Nevertheless. in contrast to thousands of categories for manufactured goods.S. Furthermore. see Chapter 4. Despite recent innovations in the collection of primary source data.1 percent at an annual rate The Year in Review and the Years Ahead | 53 . economy. As an example. Continued research and investment in the development of data on services are needed to ensure timely and accurate measurement of the U. much less quantify. thanks to a concerted effort by the Bureau of Labor Statistics. PPI deflators are available for more than three-quarters of domestically provided services. as reported by the Mortgage Bankers Association. Business Fixed Investment Business fixed investment grew at a solid 7. but there is not a consensus about how to value and incorporate these benefits in a national income accounting framework.3 percent annual rate during the four quarters of 2011. the work of accurately measuring service activity grows accordingly. The share of mortgages in the foreclosure process remained elevated by historical standards in 2011 and changed little from the level in 2010. service output.S. the Producer Price Index (PPI) covered less than 5 percent of U. For a description of the Administration’s housing policy proposals. there are still conceptual issues pertaining to the appraisal and definition of services that remain unresolved. after rising 11. and even the most disaggregated data collected by the BEA on services extend to only 36 categories. In 1990. industries such as finance largely produce intangible outputs that are difficult even to identify. the value of the mortgage exceeds the house price). as the U. economy continues to evolve.coverage of services in the Economic Census and marking substantial improvement relative to even just a few years ago. Measurement of real activity in the service sector requires appropriate price deflators for service outputs.

factories rose 3.4 percent in 2010. and. (See Chapter 8. Investment in industrial equipment also grew notably. Manufacturing Output The real output of U.2 percent. Corporate profits continued to rise in 2011 and were above their pre-recession level. as the prospects for sales have begun to improve. Business outlays on information technology rose at a 4.7 percent over the twelve months of 2011 after having risen 6. The strength of business fixed investment since mid-2009 reflects several developments.7 percent annual rate over the four quarters of 2011. while corporate dividends have returned roughly to pre-recession levels.in the four quarters of 2010.7 percent.1 percent annual rate in 2010. and investment in nonresidential structures increased 2. according to the manufacturing component of the industrial production index published 54 | Chapter 2 . edged down over the four quarters of 2011. posting a four-quarter increase of 15. businesses have invested in recent years to replace aging equipment.) Investment in commercial and health care structures. Business investment may be positioned to grow rapidly if demand accelerates because corporations have plenty of internal funds (Figure 2-6). purchases of transportation equipment rose at a brisk 22. Investment fell sharply during the recession.S. on the other hand. In addition. corporate cash flow. Largely as a result.1 percent annual rate over the four quarters of 2011. as can be seen by the rising level of liquid assets held by nonfinancial corporations. reflecting elevated oil prices as well as some advances in technology that have enabled drilling at new sites. Within equipment and software. spending on equipment and software investment grew 9. On one hand. has also risen substantially during the recovery.0 percent over the four quarters of 2011.) Investment growth among the categories of nonresidential structures was mixed in 2011. (For more information on how investment is defined. investment in mining and drilling structures was strong. a measure that includes undistributed profits and depreciation and represents the internal funds available for investment. a third consecutive year of solid growth. The President has proposed extending this provision into 2012. Among the two main components of business fixed investment. after having surged at a 68. A large share of these investable funds has been channeled to financial investments rather than to new physical capital. the Administration’s 100 percent business expensing policy boosted business investment by allowing firms to take an immediate deduction on investments made in new equipment in 2011. see Data Watch 2-2.

Following two decades of shrinking employment—a trend that reflected both increases in automation and the lower labor costs in emerging-market economies—manufacturers in the United States have added more than 400.S. in part. (See Chapter 5 for more discussion of the rising competitiveness of U. as discussed in the special report. The rise in manufacturing output during the recovery has provided a considerable boost to the U.S. motor vehicle industry has played a particularly large role.                 by the Federal Reserve Board.;  Congressional  Budget  Office.102). This nascent trend likely reflects.S. As U.  Cash  flow.000 jobs since employment in the sector reached its low in January 2010.  1990–2011   Percent  of  potential  GDP         14 13 12 11 2011:Q3   Nonresidential  fixed   investment      Cash  flow   10 9 8 7   2011:Q4    Liquid  assets  held  by   nonfinancial  corporations   6 5 1990:Q1 1993:Q1 1996:Q1 1999:Q1 2002:Q1 2005:Q1 2008:Q1 2011:Q1             Note:  Potential   GDP  is  a  CBO  estimate.) The robust gains in manufacturing output during the recovery appear to reflect rising investment demand for domestically-produced capital goods from both domestic and foreign customers.             and  nonfinancial  liquid  assets  are  plotted  using  three-­quarter  moving  averages.  from  the  National  Income  and  Product  Accounts. The rebound of the U.;  Federal  Reserve  Board   (Flow  of  Funds  L.S.           Source:  Bureau  of  Economic  Analysis. These numbers reflect an emerging trend of some companies bringing jobs back to the United States.7 percent since its low in June of 2009—its fastest pace of growth in a decade. The manufacturing sector has been growing faster than the rest of the economy during the recovery.  National  Income  and  Product  Accounts. the improvement in unit labor costs in the United States relative to many of our trading partners in recent years. economy. with real output rising at an average annual rate of 5. Investing in America: Building an Economy that Lasts (White House 2012). industry. demand for new The Year in Review and the Years Ahead | 55 . with the production of motor vehicles and parts directly accounting for about 23 percent of the increase in manufacturing output since mid-2009.Figure  2-­6   Business  Fixed  Investment  and  Cash  Flow.

Businesses also spend money on strategic planning. Hulten. was to treat spending on computer software as an investment outlay. In addition to research and development that builds on a scientific base of knowledge. it too would have raised the average measured rate of growth of GDP in recent decades. rather than as a business expense. their importance to future economic growth should not be overlooked. taken in 1999. Until recently. all of which may add significantly to future productivity and thus arguably should be treated as investment as well. the treatment of government spending on computer software was changed at the same time. Taking an even broader perspective. and net additions to inventories. and employee training. Some researchers have argued that investment in intangibles should be defined even more broadly (Corrado. In 2013. and Sichel 2009. time and money devoted to formal education add to the human capital of the American workforce and thus to its future productivity. Corrado and Hulten 2010). and equipment. had this treatment been in effect historically. Because business and government spending on computer software had been growing rapidly compared to other types of spending. BEA plans to begin treating spending on scientific research and development as an investment rather than an expense. new residential construction. returns on human capital generate the lion’s share of national income. intangible assets such as computer software and scientific innovations make increasingly important contributions to economic growth. the implementation of new business processes. According to some research (Krueger 1999).Data Watch 2-2: Investment in Intangibles Investment can be defined as devoting resources to produce a durable asset that will yield a future flow of services. The Bureau of Economic Analysis (BEA) has begun to incorporate investments in intangible capital into the NIPAs. however. 56 | Chapter 2 . The first step in this direction. these changes raised the measured growth rate of GDP slightly. While accounting accurately for the value of these investments poses some difficult measurement challenges (Abraham 2010). for example. measures of investment in the National Income and Product Accounts (NIPAs) were restricted to investments in physical capital such as buildings. such as the development of new motion pictures or new financial services products. there is an argument for treating as investment the money firms spend on other sorts of new product development. machinery. which enters GDP directly. In today’s knowledge economy. which is considered an intermediate input rather than a part of final demand.

7 percent in FY 2011 from 9. and inventories in the manufacturing and trade sectors remained lean relative to sales.S. Federal receipts rose 6. Over the past two years.vehicles has recovered. auto industry—including dealerships and suppliers of auto parts—has added nearly 160. In addition to rescuing the American auto industry.S. and sales at Chrysler grew faster in 2011 than in recent years. Inventory investment—measured as the change in inventories from one quarter to the next—is typically an important contributor to the changes in real GDP during recessions and the early stages of recoveries. the Detroit auto companies along with the foreigndomiciled auto companies have been expanding U.4 percent in FY 2011. To build on the progress already made. and foreign markets. Consumption. and Investment The Federal budget deficit during Fiscal Year 2011—which ended on September 30—was $1. As a share of GDP. in part. The slower pace of inventory investment in the second quarter reflected. Over the course of 2011. but closed out the year on a high note. the reduced rate of motor vehicle production caused by disruptions to the flow of auto parts following the earthquake and tsunami in Japan. production to serve both U. Business Inventories Businesses continued to build inventories during 2011.0 percent in FY 2010. Corporate tax receipts in FY 2011 were only about half what they were in FY 2007. largely driven by a 21. real inventory investment stepped up in the first quarter and then slowed in the second and third quarters. roughly unchanged from the year before. Corporate tax receipts fell 5. the entire U. real inventory investment added roughly 0. The Year in Review and the Years Ahead | 57 .5 percent increase in individual income tax receipts. the deficit fell to 8.5 percent during FY 2011. Altogether. partly reflecting the introduction of 100 percent depreciation for business equipment investment in calendar year 2011 (up from 50 percent in calendar year 2010). Ford is investing in new American plants. Government Outlays. the Administration has more broadly supported American manufacturing through its efforts to reduce barriers for American businesses to sell products all over the world. which pulls forward deductions that businesses would otherwise receive over several years.S.000 jobs. General Motors was the world’s top-selling automaker in 2011. which included proposals to encourage companies to create manufacturing jobs in the United States while removing tax deductions for shipping jobs overseas. the President laid out in his 2012 State of the Union address a Blueprint for an America Built to Last.2 percentage point to real GDP growth between the fourth quarter of 2010 and the fourth quarter of 2011.3 trillion.

8 billion. approximately half of the year-over-year increase in Federal outlays reflects re-evaluations of the cumulative cost of the Troubled Asset Relief Program (TARP). and to 3. The past three years of unemployment benefits stabilized consumer spending at a level higher than would have occurred absent this income support.even as domestic corporate profits (excluding Federal Reserve Banks) were roughly unchanged. and Medicaid rose in FY 2011. Business credits for corporations have increased between 2007 and 2011.7 percent in FY 2011 to 5. Combined total spending on Social Security. 58 | Chapter 2 . The fullemployment deficit as a share of GDP (the budget deficit that would exist if the economy were at full employment) would be roughly unchanged in FY 2012 and fall by about 3 percentage points in FY 2013 and by another 1. This fiscal consolidation will restrain the 8 The divergence of corporate profits and corporate tax receipts between 2007 and 2011 reflects changes in tax policy and differences in how profits in the National Income and Product Accounts (NIPA) and corporate taxable income are calculated. The components of NIPA profits that are not counted in taxable income include capital gains.3 percent. and Federal Reserve profits. well below the Administration’s 2009 estimate of $341 billion. According to the CBO. bad debt. The CBO adjusted down the total cost of the program in FY 2010 and FY 2011.2 percent in FY 2011 from FY 2010 but remained steady as a share of GDP at 24. following total benefits of $80 billion in 2010. as measured in the National Income and Product Accounts. which includes demand-supporting initiatives for FY 2012 that have not yet been approved by the Congress.5 percentage points in FY 2014. extended unemployment benefits and emergency unemployment benefits are on track to be about $60 billion in 2011. According to the Department of Labor.5 percent in FY 2013. and federal nondefense spending declined 2. In addition. During the four quarters of calendar year 2011.8 In contrast.1 percent. Federal outlays rose 4. the deficit as a share of GDP will fall from 8. 9 The CBO (2011c) estimates the net present value of the cumulative cost of TARP each year and—if costs are revised down—records the changes in these valuations in the Budget as a negative outlay. the 2 percentage point reduction in payroll taxes through the end of 2011 lowered tax liabilities by about $114 billion. federal defense spending fell 3. Nominal spending on defense grew more slowly in FY 2011 than in recent years. individual income tax receipts in FY 2011 were more than 90 percent of their FY 2007 level. Medicare. but the downward adjustment in FY 2011 was smaller than in FY 2010.4 percent in FY 2015.9 The President’s FY 2013 Budget estimates that the cumulative cost of TARP will be $67.6 percent. real Federal expenditures on consumption and gross investment.7 percent over the four quarters of 2011. declined 3. As projected in the Administration’s FY 2013 Budget. though at a slower pace than the average over the past three years.

Federal grantsin-aid to the states plunged $87. in part. or $50 billion. recoveries. State and local tax revenues rose about 4 percent. Looking further ahead. Reflecting. both the earlier increase and the 2011 decline were attributable to the Recovery Act.8 billion during the four quarters of 2011 after rising notably during 2009 and 2010. roughly the same pace as during the year-earlier period. Although nominal State and local government tax receipts continued to increase in 2011.000 from its peak in August The Year in Review and the Years Ahead | 59 . which was designed to offer temporary support to State and local governments.2 percent over the four quarters of 2011.000 in 2011.growth of demand in those years. following a 4. About half of the rise came from personal income taxes.S. as noted. Policy changes recommended in the FY 2013 Budget put the debt on a stable or declining path as a share of the economy and would—if enacted—place the budget in a fiscally sustainable position in the ten-year budget window. and. the decline in Federal grants-in-aid between the third quarters of 2010 and 2011. the operating position of State and local governments deteriorated to an aggregate deficit of $83 billion by the third quarter of 2011. and employment in the sector fell 660.8 percent of GDP near the end of the 10-year budget window. during the four quarters through the third quarter of 2011. State and local taxes on production and imports—a category that includes sales and property taxes—increased about $32 billion over this period. while corporate taxes were down $8 billion. the fourth consecutive year of operating deficits for the State and local sector. Federal funds from the Recovery Act—which helped support State and local governments during 2009 and 2010—declined. but an increase in private-sector demand in those years is projected to fill in the gap.4 percent increase in the year-earlier period. declines in this sector’s revenues have forced sharper declines in real State and local consumption and gross investment than in earlier U. the deficit reduction from the cuts mandated by the Budget Control Act of 2011 and the expiration of the tax cuts on upper-income Americans enacted between 2001 and 2003. combined with the winding down of operations in Afghanistan and Iraq. will bring deficits down to approximately 2. and employment continued to contract.   Current State and local government expenditures—which include transfers to individuals as well as government consumption—fell 0. State and Local Governments State and local governments remained under severe fiscal pressure in 2011. Employment in State and local government declined by 235.

and bridges. Part of the Recovery Act. expanding 3. an increase that creates jobs for U. About 36 percent of the jobs lost over this period were in education. Meeting this goal depends. world growth. The Administration took important steps in 2010 and 2011 to help State and local governments maintain critical services in public safety and education. the Administration eased the burden on State and local governments in August 2010 by establishing a new teacher job fund and by extending the enhanced Federal matching formula for certain social services and medical insurance expenditures covered by the States.2008 to December 2011. and firefighters.  Total exports rose at an average rate of almost 16 percent per year between 2009 and the twelve-month period that ended in November 2011. bridges. goods and services abroad. As noted. Real Exports and Imports Real exports grew 5. on healthy growth of the world economy.2 percent during the four quarters of 2011 after jumping 8.8 percent over the four quarters of the year. workers and puts U. the Administration also included funds in the American Jobs Act to modernize more than 35. and hospitals (Department of Treasury 2011).S. roads. however.000 schools. Maintaining robust exports is a key to building an American economy that can prosper in the global economy in the years to come (see Chapter 5). the President proposed additional funds as part of the American Jobs Act to prevent layoffs of teachers.S. such as schools.  The rise in real imports over the past year likely reflects 60 | Chapter 2 .S. To support infrastructure investment.9 percent during the four quarters of 2011. may falter in the near term for reasons related to the sovereign debt crisis in Europe. fell 9. Some of the decline is attributable to the expiration of the Build America Bonds program at the end of 2010. a decline notably steeper than those of the preceding three years. Real imports also grew in 2011. in part. Real investment by State and local governments in structures. the rebound in exports since the trough of the recession has been strong and reflects rising demand for U. and past declines in house prices erode the property tax base. In 2011. police. including schools.8 percent in 2010. exports on track to meet the President’s goal of doubling nominal exports between 2009 and the end of 2014. State and local governments have made tough budget decisions during the past four years. In addition to the grants-in-aid components of the Recovery Act. They will likely continue doing so in 2012 as Federal transfers diminish. the program subsidized municipal bonds issued for infrastructure development and helped finance $181 billion worth of capital projects.

Figure  2-­7   Weekly  Initial  Unemployment  Insurance  Claims. after subtracting from real GDP growth in the year-earlier period. Private sector payroll employment has grown in each month since February 2010.000.the increase in consumer spending on goods. The growth in private-sector jobs was the strongest since 2005. real net exports—exports less imports—made a small positive contribution to the rise in real GDP over the four quarters of 2011. adding a total of 1. The four-week average of initial claims continued to recede through the end of January 2012.8 million jobs.     Source:  Department  of  Labor.1 million jobs during the twelve months of 2011.     2011 The Year in Review and the Years Ahead 2012 | 61 .  Employment  and  Training  Administration. As is typical.  Shading  denotes  recession. and layoffs—as measured by the four-week average of initial claims for unemployment insurance—have come down considerably over this period (Figure 2-7). Private-sector job growth during the current recovery has been similar to that in the 1991 recovery and faster than that in the 2001 recovery. All told. the rise in real business fixed investment. By comparison. as illustrated in Figure 2-8. The private-sector added 2. and the continued recovery in industrial production in 2011. while State and local government employment fell by 235. the recovery in jobs since 2009 has lagged the recovery in output.  seasonally  adjusted   700 600 500 400 Week  ended   1/28/2012   300 200 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Note:  Four-­week  moving  average.  2004–2012   Thousands. Growth in private nonfarm jobs in the current recovery began nine months after the business-cycle trough. Labor Market Trends The job market continued to heal in 2011.

At the business-cycle peak in the fourth quarter of 2007. The U-6 measure includes in the pool of unemployed workers those who are underemployed or are marginally attached to the labor force. Other measures of labor market slack—such as the “U-6” unemployment rate published by the Bureau of Labor Statistics—have also declined over the past year. the workweek for all private-sector employees Figure  2-­8   Private  Nonfarm  Employment  During  Recoveries   Indexed  to  100  at  NBER-­defined  trough   108 106 Current  (June     2009  trough)   104 1991   102 100 2001   98 96 -­36 -­6 Trough 6 12 18 24 30 36 Months  from  trough   Source:  Bureau  of  Labor  Statistics. The U-6 unemployment rate in January 2012 was a percentage point below its year-earlier level.3 percent by January 2012. recovery in the labor market began somewhat sooner. Thus.payrolls first began expanding consistently twelve months into the 1990–91 recovery. the steep rate of job loss during the recession has left the rate of unemployment high. Nonetheless. and sustained private-sector job growth in the 2001 recovery did not begin until 21 months after the official end date of the recession.  Current  Employment  Statistics. During the recovery the unemployment rate receded from its peak of 10. other margins of labor market adjustment such as the workweek also contain important information about the pace of the recovery. although the 2007–09 recession lasted longer and featured job losses much deeper than those in the recessions of 1990–91 and 2001. that is. In addition to tracking the number of jobs added in 2011.0 percent in October 2009 to 8.;  National  Bureau  of   Economic  Research. would like a job but are not currently searching for work.   62 | -­30 Chapter 2 -­24 -­18 -­12 .6 percentage point between October 2011 and January 2012 (Figure 2-9).;  CEA  calculations. The unemployment rate dropped by 0.

A 0.1 percent over the twelve months of 2011.  1979±2012   10 9 8 Jan-­12     7 6 5 4 3 1979 1983 1987 1991 1995 1999 2003 Note:  Shaded  areas  represent  recessions. By the fourth quarter of 2011. including wages and benefits.4 hours. By the second quarter of 2009.000 jobs. and Prices Hourly compensation rose at about the same pace in 2011 as in 2010.  Current  Population  Survey.   Source:  Bureau  of  Labor  Statistics. Labor productivity in the nonfarm business sector (that is. rose 2. Wages. The employment cost index for private-sector workers. recovering most of the hours lost during the recession.   2007 2011 averaged 34. it had shortened 0.5 percent during the four quarters of 2011.8 percent annual rate.8 hour.1 hour lengthening of the workweek is roughly equivalent. the workweek increased to 34. up slightly from the pace during 2010 but well below the average increase of about 4.6 hours. roughly the same as the year-earlier increase.Percent   11 Figure  2-­9   Unemployment  Rate.0 percent in 2006 and 2007. in terms of labor input.7 percent during the four quarters of 2011. to an increase in employment of more than 300. real output per hour worked) rose about 0. Nominal hourly compensation in the nonfarm business sector—a measure based primarily on compensation in the National Income and Product Accounts—rose 1. Averaged over the nearly four years since the business-cycle peak. labor productivity grew at a 1. Labor Productivity. The Year in Review and the Years Ahead | 63 . a slower pace of growth than during the preceding two years.

leaving unit labor costs essentially unchanged. Hourly compensation has risen at a roughly 2 percent annual rate during the four years since the business-cycle peak. The long-run projection is in line with the levels of inflation deemed by the Federal Reserve as consistent with stable prices and full employment. 1. and only slightly below survey measures of long-run inflation expectations and the 5-year forward inflation rate implied by the yields on inflation-protected Treasury securities.1 percent annual rate in the long run. The markup has now risen to its highest level in post–World War II history. 10 The Survey of Professional Forecasters projects the CPI will grow at an average annual rate of 2. crude oil. Most of the inflation in nonfarm business prices during the past four years has been due to a rise in the price markup over unit labor costs rather than to rising unit labor costs. Over the second half of 2011. this long-term property of the U. so the markup of prices relative to unit labor costs has been flat. because slack in the labor market remains. The Administration expects consumer prices to rise slightly below 2 percent a year for the next few years. saying that an increase in the price markup is the highest in postwar history is equivalent to saying that the labor share of output has fallen to its lowest level. consumer price inflation fell to 2. edging up to a 2. and some of these increases were passed through to consumer prices for food and energy products.Consumer prices—as measured by the consumer price index (CPI)— rose almost 3 percent during the twelve months of 2011. and many other commodities rose sharply in the first half of 2011. economy appears to have broken down over the past decade. After rising at an annual rate of 3. Because the markup of prices over unit labor costs is the inverse of the labor share of output. As can be seen in Figure 2-11.10 Moreover. the economy has considerable room to expand without increasing price pressures. overall consumer price inflation fell considerably as the price pressures from the earlier increases in energy and commodity prices waned.5 percent from 2011 through 2020.2 percent between June and December. the core CPI rose a more moderate 2.S.2 percent during the 12 months of 2011 after rising at an unusually slow pace of 0. but this growth has been offset by growth of labor productivity also by an annual rate of about 2 percent during the same period.8 percent in the first six months of the year. prices of nonfarm business output rise in a roughly parallel fashion to unit labor costs. with much of that increase taking place over the past four years. Excluding food and energy products. 64 | Chapter 2 . The cost of food.8 percent in 2010. although it has certainly fluctuated in the short run. Over the long run.6 percentage points more than they did in 2010 (Figure 2-10).

 Productivity  and  Costs.       Source:  Bureau  of  Economic  Analysis.  Nonfarm  Business.;  Bureau  of   Labor  Statistics.25 1947:Q1 1957:Q1 1967:Q1 1977:Q1 1987:Q1 1997:Q1 2007:Q1 Note:  Shading  denotes  recession.  National  Income  and  Product  Accounts.  2004±2011   12-­month  percent  change   6 5 Headline   Dec-­11   4 3 2 Core   1 0 -­1 -­2 -­3 2004 2005 2006 2007 2008 2009 Source:  Bureau  of  Labor  Statistics.  Consumer  Price  Index.50 Average  markup     1947:Q1-­2011:Q4:  1.00 2011:Q4   1.75 Markup  over     unit  labor  costs   1.57   1.   2010 2011 2012 Figure  2-­11   Price  Markup  over  Unit  Labor  Costs.;  CEA  calculations.Figure  2-­10   Consumer  Price  Inflation.  1947–2011   Ratio  of  prices  to  unit  labor  costs   2.       The Year in Review and the Years Ahead | 65 .

 H. reflecting the uncertainty surrounding the European sovereign debt problems and the protracted negotiations over raising the statutory U. Measures of market volatility—such as the Market Volatility Index (VIX)—rose sharply in mid-2011 before retreating near the end of the year.30%   -­1 2004 2005 2006 2007 Source:  Federal  Reserve  Board.S. equity prices—as measured by the Standard and Poor’s 500 Composite Index—were essentially flat in 2011. swings in the S&P index exceeded a percentage point only 30 times per year on average. The VIX reached levels in 2011 that were about equal to those in mid-2009 but remained well below record levels in late 2008. Following a 12.  2004±2012   5 Nominal   4 Feb.98 percent in December 2011. 20 days more than in 2010.86%   1 0 -­0. Ten-year yields rose to a monthly high of 3.S. with effects that were felt worldwide.8 percent gain in 2010. In 2005 and 2006. down from 3. External factors weighed heavily on investor sentiment at times over the course of the year. Federal debt ceiling. The day-to-day changes in the S&P index exceeded 1 percentage point on 96 days in 2011. Yields on 10-year Treasury notes were 1. After rising more than 8 percent from the end of 2010 through April.29 percent in December 2010 (Figure 2-12).   66 | Chapter 2 2008 2009 2010 2011 2012 . Concerns that had arisen late in 2009 over sovereign debt in Greece and Portugal continued into 2011 and spread to several larger countries in the European Union.15.58 percent in February of 2011. as investors Percent   6 Figure  2-­12   10-­Year  Treasury  Yields. U.2     3 2 Real   1. equity values plunged during the summer.Financial Markets The past year was a volatile one for financial markets.

the number of bank loans to small firms fell dramatically during the recession and—although it has stabilized since—still has not returned to pre-recession levels (see Figure 2-14). credit standards for large firms eased at a faster rate than for small firms. fluctuated around zero. Thus. Over the final five months of the year. more than half of firms in the private sector had 1 to 4 employees. Figure 2-13 illustrates that small firms experienced proportionately larger job losses than large firms during the recession and until early 2010. calibrated from rates in the market for federal funds futures. and nearly 98 percent had fewer than 100 employees. the Administration’s projected path for 91-day Treasury bills. The Federal Reserve System’s program to lengthen the maturity of the portfolio of their U. In 13 consecutive quarters between 2007:Q1 and 2010:Q1. Petersen and Rajan (1994) have documented the critical relationship between banks and small firms and showed that over half of financing for small firms came The Year in Review and the Years Ahead | 67 . in part because larger firms have access to other forms of finance. respondents to the Federal Reserve’s Senior Loan Officer Opinion Survey reported that credit tightened or remained tight for small firms (those with less than $50 million in annual sales) and that. Renewed concerns about sovereign debt issues in Europe.and long-term. triggered a flight to safety that pushed down long-term rates. Similarly. were recognized as being in the low end of their historical range. and real long-term interest rates at the same maturity. The FOMC forecasted in January 2012 that these rates would remain low at least through late 2014. as indicated by the market for Treasury Inflation-Protected Securities. interest rates. economy. 10-year Treasury yields fluctuated around 2 percent.S. Small Businesses and the Recovery Small firms—with fewer than 500 employees—account for about half of private-sector nonfarm employment. since 2010. however. both short. Yet. typically unavailable to small firms. anticipated that these rates would remain extremely low until the second half of 2013. on balance. during the remainder of 2011. including public debt and equity markets. government debt also held down long-term rates. in light of the Federal Reserve’s August 9 announcement that “economic conditions … are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.S.elevated their outlook for the U.” the Administration did not foresee any material changes in short-term interest rates over the near term. When the Administration’s economic forecast was finalized in midNovember 2011. Small firms depend more on banks for financing than do larger firms. Between 1993 and 2010.

Kashyap. and Klingebiel (2007) use cross-country evidence to show that banking crises negatively affect bank-dependent firms more than they affect firms less dependent on bank finance. the literature from the recent financial crisis has largely been unable to disentangle the contributions of credit-supply and aggregate-demand conditions. inventories. and Stein 1994.  Shaded  area  denotes  recession. The credit-contraction hypothesis has been used to explain the steeper loss of employment in small firms.Figure  2-­13   Private  Sector  Job  Recovery  by  Firm  Size. 11 Economists have modeled a link between the supply of credit and macroeconomic activity (Bernanke 1983. and Guiso.  Business  Employment  Dynamics. King and Levine 1993.   Source:  Bureau  of  Labor  Statistics. Their sample. and Petersen 1988. Holmstrom and Tirole 1997.   from bank finance. contains 3. DuyganBump. Rajan and Zingales 1998. Sapienza. and Zingales 2004). Levine and Zervos 1998. Credit conditions have been shown to affect a variety of specific macroeconomic outcomes. Lamont. and economic growth and development (Fazzari. 68 | Chapter 2 . Laeven. Hubbard. and Kroszner. and the National Survey of Small Business 11 Small firms in their paper are the smallest 10 percent of the sample measured by the book value of assets. which is drawn from the Federal Reserve’s National Survey of Small Business Finances conducted in 1988 and 1989. Compustat. and Peek and Rosengren 2000). Gertler and Gilchrist (1994) find that smaller manufacturing firms respond more to money supply conditions than larger firms. and Montoriol-Garriga (2011) use data from the Current Population Survey. Until recently. Levkov.404 firms with fewer than 500 employees.  2007±2011   Indexed  to  100  at  2007:Q4   102 100 98 96 2011:Q2 94   Large  firms     92 Small  firms   90 88 2007:Q1 2008:Q1 2009:Q1 2010:Q1 2011:Q1 Note:  Small  firms  have  fewer  than  500  employees. including investment spending. however.

credit unions. however.  2007±2011     Millions  of  loans   40 Billions  of  dollars   400 350 Value  of  loans     (left  axis)   Number  of  loans     (right  axis)   35 2011:Q3 300 30 250 25 200 20 150 15 100 10 50 5 0 0 2007 2008 2009 2010 Note:  Loans  with  original  amounts  of  less  than  $1  million. following the crisis of 2007–09.6 percentage points at small banks. The Year in Review and the Years Ahead | 69 . They find that.Figure  2-­14   Small  Business  Commercial  and  Industrial  Loans. the likelihood that an employee will become unemployed is greater in small firms (defined as those with 99 or fewer employees). the data show that other financial institutions—smaller banks. reports that loan-approval rates by large banks fell 3.  Statistics  on  Banking. a private firm that matches over 1. and other alternative lenders—and governmentsponsored programs have filled part of this gap.     2011 Finances to separate the contributions of these two factors.12 The authors do not observe such a divergence in unemployment incidence in firms with low dependence on external finance. Simultaneously. the share of lending to small businesses by the largest banks—those with assets of over $50 billion—had risen substantially (Corner and Bhaskar 2010). as in previous recessions involving banking crises. Further. Prior to the financial crisis.5 million small businesses seeking loans to nearly 500 lenders and loan intermediaries. the likelihood of becoming unemployed was greater in sectors that were more dependent on external finance.5 percentage points 12 This evidence does not address whether the credit-supply conditions are due to factors related to lower credit quality.   Source:  Federal  Deposit  Insurance  Corporation. financing has been constrained and it remains so for small firms seeking funding. while increasing 3. Since 2009. among firms highly dependent on banks for financing. Biz2Credit. Between January and December 2011.1 percentage points. 8.

among other things.S. target small firms. Between FY2010 and FY2011. Jackson. and make government work better for entrepreneurs.1 Many SBA programs seek to minimize the riskiness of small-business loans for lenders by guaranteeing a portion of these loans against default.4 percent (see box figure).and early-stage companies and the Impact Investment Fund for companies in areas of national priority. The limits for equipment and real estate loans were increased permanently and the limits for working capital loans through the SBA Express program were increased temporarily.Box 2-1: SBA’s Role in Financing Small Firms During the Recovery The Small Business Administration (SBA) was created by Congress in 1953 to aid and provide technical support for small businesses. including underserved markets and emerging 1The Small Business Administration’s definition of a small business uses guidelines that reflect. sales. The box figure depicts the value of loans 7(a) and 504 loans approved. The SBA has launched two new Small Business Investment Company (SBIC) programs.5 billion in FY 2011.gov/sites/default/files/Size_Standards_ Table. In response to ongoing tight credit conditions facing small firms during the recovery. SBA collaborates with federal agencies and the White House to ensure that at least 23 percent of Federal Government contract opportunities. 2 Lending supported includes gross loan approvals for SBA’s 7(a) and 504 programs as well as third-party loans that are made by commercial lenders as part of the 504 funding package. employment levels. the Small Business Jobs Act of 2010 increased the loan limits for SBA loan guarantees.pdf. The Obama Administration has created the Startup America initiative to support the role that startups play in economic growth and job creation. The initiative aims to accelerate high-growth entrepreneurship through policies that unlock access to capital for high-growth companies. the 7(a) and 504 loans. are available to small businesses. worth nearly $100 billion. SBA increased overall lending supported to $30. (see Chapter 6).5 percent. while the value of SBA loans approved increased 45. which will be smaller than the value of loans supported. create mentoring programs. the highest ever lending year in its 60-year history.sba. 70 | Chapter 2 . the number of SBA loans approved increased 12. accelerate lab-to-market innovation. These programs have been found to have a positive impact on local economic performance (Craig. As a part of the Startup America initiative. and Thomson 2005). These guidelines are available online at http://www. and sector of economic activity. Traditional SBA programs. each seeking to guarantee an additional $1 billion in private investment within five years: the Early-Stage Innovation Fund for seed. SBA is improving access to capital for high-growth small businesses.2 Recent economic research shows that new and young firms contribute disproportionately to job growth in the U.

with resources of $130 million. Dow Chemical Company. The Year in Review and the Years Ahead | 71 . As is common after financial crises. and Michigan Growth Capital Partners that will be managed privately and will focus on funding new and small firms with plans to expand their operations and create jobs. which requires an agency to pay its contractors within 15 days and. small firms are experiencing difficulties managing cash flow due to adverse credit conditions. In December. within 30 days. To improve access to working capital for thousands of small firms. Evidence suggests that SBA and SBIR involvement make a difference to young firms. SBA also deepened its commitment to underserved markets in 2011 with the implementation of the Underserved Markets Initiative. such as energy and education.  2011.  2006-­2011   Billions  of  dollars     30 Thousands  of  loans   120 28 110 Value  of  Loans 26 Number  of  Loans 100 24 90 22 20 80 18 70 16 60 14 50 12 10 40 2006 2007 2008 2009 2010 Source:  Small  Business  Administration.sectors. which will disseminate SBA resources to youth. President Obama issued an executive order to institute the QuickPay program.     2011 SBA augmented its role as a coordinator of federal agencies in supporting small businesses in 2011. Between 1983 and 1997 awardees of the SBIR program subsequently had substantially higher employment and sales growth compared to a matched sample of similar firms (Lerner 1999). veteran. The InvestMichigan! Mezzanine Fund. rural. SBA plays a coordinating role for the Small Business Innovation Research (SBIR) program. Congress passed a long-term reauthorization of the SBIR program that will increase its funding. and other communities. SBA  Loans  Approved. in September.  Agency  Financial  Report. at a maximum. is a public-private partnership between SBA. As with the QuickPay program. SBA licensed the first SBIC Impact Investment Fund in Michigan in July 2011. which focuses on small high-technology firms and includes 11 granting agencies. low-income.

000 financial institutions. (Box 2-1 further describes the Administration’s efforts to address credit constraints among small businesses through the SBA’s loan-guarantee programs administered through bank finance and Startup America.) The most recent data on the expectations of small businesses concerning financing and future job growth suggest that these efforts. which is expected to channel $15 billion in new small-business lending. microlenders. and business loan funds. regardless of the fate of the recipient car company.5 billion over their baseline. systemic failure in this sector would have had a substantial effect on the auto industry. most of which were small banks but also including credit unions.000 firms in the Biz2Credit database reported each month between January 2011 and December 2011. SBA supported over $30 billion in loans. along with 13 Small firms in the Biz2Credit sample are firms with fewer than 500 employees and under $6 million in annual revenue. 82 percent of which employ less than 100 workers. As of the beginning of January.1 million jobs and hundreds of small businesses (White House 2010). 72 | Chapter 2 . the Obama Administration increased the amount of capital invested in financial institutions and other entities to support small-business lending. the Financial Stability program was modified in 2009 to protect auto parts suppliers.9 percentage points at other alternative lenders. and accounts-receivable financiers. Other Administration initiatives also helped small firms gain access to capital at a critical period. This lending evolved along two lines: investing capital directly into financial institutions that provide small business loans and adding funding to new and existing programs that provide credit support to small business loans. the Department of Agriculture. the Administration invested more than $11 billion in over 1. institutions participating in the SBLF have increased lending to small businesses by roughly $3. For example.13 In 2009. output.at credit unions. In terms of direct investment that strengthened small-business lending. The programs that provide small-business credit support include the new State Small Business Credit Initiative (SSBCI). and employment. and. in Fiscal Year 2011. such as CDFIs. and 12. the manufacturing supply chain. 14 It is estimated that intervention in the auto industry broadly averted a loss of approximately 1. such as loan-guarantee programs housed at the Small Business Administration (SBA). to ensure that they would be paid for any parts they shipped. marked increases in these capital-access programs were partly due to the introduction of two new programs administered by Treasury—the Small Business Lending Fund (SBLF) and the SSBCI—and increases in the scope of the aforementioned loan-guarantee programs. as well as existing programs. Loan-approval rates are based on a random sample of 1. and the Export-Import Bank. Given the integral role auto-parts manufacturers play in the manufacturing supply chain. Community Development Financial Institutions (CDFIs).14 By the end of FY2011.

revenue and cash flow. See Jacobe (2012). which was used to estimate the FY 2013 Budget. 2012. Small-business owners who responded to the Wells Fargo-Gallup survey conducted from January 9 to 13.  2003±2012   Percent  of  respondents   35 30 25 20 2012:Q1 Employment  expected  to   increase  over  next   12  months       15 10 Employment  expected  to   decrease  over  next   12  months   5 0 2003-­Q3 2005-­Q3 2007-­Q3 2009-­Q3 2011-­Q3 Note:  Small  firms  have  less  than  $20  million  in  annual  revenue. inflation 15 The Wells Fargo-Gallup telephone survey was based on a nationally representative sample of 604 firms extracted from the Dun & Bradstreet database of firms earning $20 million in annual revenue or less.15 Moreover. This is the biggest margin by which small businesses’ expectations for increasing jobs have exceeded those for decreasing jobs since the start of the financial crisis in 2008. respondents’ hiring plans have become more optimistic than at any point since January 2008. In the economic forecast.   the ongoing economic recovery. In early 2012.  Shaded  area  denotes   recession. i. are having a positive effect. for example. the Administration projects that the economic recovery that began in 2009 will continue and gather speed (Table 2-1).   Source:  Wells  Fargo/Gallup  Small  Business  Survey  cited  in  Jacobe  (2012). This sentiment is largely attributed to sharp increases in their expectations related to their firms’ financial situation..e. The Year in Review and the Years Ahead | 73 . as Figure 2-15 illustrates.Figure  2-­15   Employment  Outlook  for  Small  Businesses. more small businesses expected to add new employees in the next 12 months (22 percent) than expected to let them go (8 percent). The Long-Term Outlook Looking ahead. report being more optimistic than at any time since July 2008.

3 2022 4.8 2.9 1.8 2012 4.7 3.1 2021 4. 91-day Treasury bills (percent) Interest rate.6 0.1 5. This should not be interpreted as a projection that the unemployment rate will rise: instead. and the Office of Management and Budget.1 4. 10-year Treasury notes (percent) Level. the Department of Commerce (Bureau of Economic Analysis). Table 2-1 Administration Economic Forecast Nominal GDP Real GDP (chaintype) GDP price index (chaintype) Consumer price index (CPI-U) Percent change.1 2.6 1.1 4.1 1.1 2020 4. The Administration also expects the employment situation to continue to improve in coming years: The Administration’s unemployment rate forecast—also completed in mid-November 2011.1 5. beginning 2012 well below the 8.1 3.9 0. the Department of the Treasury.0 1.1 5.8 2013 4.8 2. The second.4 2016 5.7 3.2 3.8 2.0 2018 4.8 2. The interest rate on 91-day T-bills is measured on a secondary-market discount basis.0 1.1 5.9 0.1 5.8 1.7 2.2 1.8 2. and fourth columns of Table 2-2 show a range of forecasts that were completed more recently so as to illustrate a plausible range through which the unemployment rate is likely to evolve.0 1.7 3.8 2. interest rates rise gradually.8 4.1 2019 4.1 3.9 percent unemployment rate that had been forecast for the year as a whole.3 2. calendar year 2010 (actual) 4.0 1.7 2017 5.8 2. The Administration projects real GDP growth to rise to 3 percent in 2012 and 2013 after growing 1.0 2.2 2011 4.3 percent.4 2. and were used for the FY 2013 Budget.5 1.6 3.6 1.5 1. when the latest-available reading on the unemployment rate was 9.1 4.remains moderate.2 0.8 1.1 2.8 4.7 2.5 1.6 1.1 4. The Budget forecast does not reflect the improvement in the job market since the forecast was finalized. is shown in the first column of Table 2-2.3 2.9 2015 6.3 Note: 2011-2022 forecasts were based on data available as of November 15. 74 | Chapter 2 .1 4.1 4. it is the result of an out-of date forecast.1 4.5 2014 5.8 2.1 5.3 2. third.6 1.0 percent for October.6 percent during the four quarters of 2011. Q4-to-Q4 Interest rate. and the rate of unemployment recedes.6 2. Since that forecast was completed.7 4.2 3.0 1.8 3. the unemployment rate has fallen to 8. 2011. Source: The forecast was done jointly by the Council of Economic Advisers.4 3.

4 5. Blue Chip Economic Indicators. The Council of Economic Advisers’ forecast for the gain in payroll employment was finalized in early February. Federal Reserve.8 8.000 in November. a In early February. c The Blue Chip Economic Indicators for February 2012 was based on a survey of more than 50 professional forecasters conducted on February 6-7.9 8. the Office of Management and Budget.5 — — 131 2019 5.2 – 8.5 — — 101 2020 5. Similarly.4 – 8.000.5 5. the Department of the Treasury.4 — — 97 2022 5.4 percent for those two years. b The Congressional Budget Office forecast was completed in early December.7 — — 251 2018 5.4 — — 92 2021 5. The high-10 and low-10 forecasts are the average of the ten highest and ten lowest forecasts. and January. after the labor market report was released showing growth of 157.1 8.5 167 2013 8. 2011.5 percent for the fourth quarter of 2012 and 7. e Based on data available on February 5.6 and 8. Source: Aspen Publishers. Looking ahead.1 220 2014 8.2 percent to 8. and the Department of Commerce) was based on data available as of November 15. 2012. thousands) Feb-2012 FY 2013 Budgeta Nov-2011 CBOb Dec-2011 2011 9.1 7.6 264 2015 7.4 percent in 2013 while the highest ten projected 8.000 in 2011 to The Year in Review and the Years Ahead | 75 .4 — — 284 2016 6.0 – 8.0 — — 146 2012 8. 203. 2012.0 9.8 5.6 9. and 243. the average monthly change in payroll employment is projected to rise from 146. as of February 2012 Unemployment rate (percent) Fourth quarter Annual average Blue Chipc low-high Feb-2012 FOMCd low-high Jan-2012 Nonfarm payroll employmente (average monthly change.5 6. the members of the Federal Reserve’s Open Market Committee projected a central-tendency band of 8.3 7. the ten forecasters with the lowest unemployment rate forecasts on the Blue Chip panel of professional forecasters projected that the unemployment rate would average 8.Table 2-2 Alternative Labor Market Forecasts.7 — 6.6 8.3 — — 259 2017 5.4 5.0 percent in 2012 and 7. Federal Open Market Committee.4 5.4 – 8. December.4 7.3 — — 89 The Administration Budget forecast (done jointly by the Council of Economic Advisers.4 to 8.000. d The high and low end of the central tendency of the Federal Open Market Committee announced on January 25.7 – 7. And it should be noted that the CBO and FOMC forecasts are somewhat out of date in view of the encouraging January labor market report. Q4-to-Q4. respectively. 2012.1 percent for 2013.4 5.

because actual GDP tends to gravitate toward its potential in the long run.about 167.5 percent annual rate. The third column shows the Administration’s projection for the 11-year period from 2011:Q3 to 2022:Q4. a period that includes the 2007-09 recession and the recovery so far.000 in 2012. column 3). a blended forecast period over which the effects of the recession and recovery are offsetting. Between 2011:Q3 and 2022:Q4—the projection period for the FY 2013 Budget—potential real GDP is projected to grow at a 2. Each column in Table 2-3 shows the average annual growth rate for each component over a specific period of time: The first column shows the long-run average growth rates between the business-cycle peak of 1953 and the business-cycle peak of 2007. with business-cycle peaks chosen as end points to remove the substantial fluctuations within cycles and to reveal long-run trends. the Administration expects an upturn in economic growth. The working-age population is projected to grow 1. and the ratio of real GDP to nonfarm output. The projected moderate decline in the labor force participation rate reflects the balance of opposing influences. Table 2-3 shows the Administration’s forecast for the contribution of each supply-side factor to the growth in potential real GDP. GDP—or potential GDP—plays an important role in guiding the Administration’s long-run forecast.0 percent a year. labor productivity. the ratio of nonfarm business employment to household employment. the workweek. the labor force participation rate is projected to decline 0.1 percent a year (line 2.S. With the economy now operating below its capacity and many resources still underutilized. the same rate of growth that is projected by the Census Bureau.8 million created last year. The entry of the baby-boom generation into its retirement years is expected to reduce the participation rate in the 76 | Chapter 2 . The factors include the population. The growth rate that characterizes the long-run trend in real U. an increase from the 1. over the projection period (line 1. Growth in GDP over the Long Term The growth rate of the economy over the long run is determined by the growth of its supply-side components. Despite shocks that slowed growth in 2011. column 3). two million jobs will be created during 2012. At this pace. The second column shows average growth rates between 2007:Q4 and 2011:Q3. we forecast that the recovery will continue to gain strength. and the fourth column shows average projected growth rates between 2007:Q4 and 2022:Q4. the rate of labor force participation. on average. primarily because of longstanding demographic trends. the employed share of the labor force. Over this same period. although growth rates over shorter periods can vary considerably.

0 0.4 –0. CEA calculations.2 5 Average weekly hours (nonfarm business) –0. a coming years.Table 2-3 Components of Actual and Potential Real GDP Growth. Department of the Treasury.0 6 Output per hour (productivity.04 percentage point per year between 2007:Q4 and 2022:Q4. the labor force participation rate is projected to recede about 0.1 3. As these young adults complete their education. column 3) but to be nearly unchanged. they are expected to re-enter the labor force. 1952–2022 Growth ratea Component History. Office of Management and Budget.3 –0. The labor force participation rate may also receive a boost during the forecast period from the recent increase in the share of young adults enrolled in school. Labor Productivity and Costs.4 percent from 2007 through the end of the projection period.1 –0. the employed share of the labor force has contributed negatively to GDP growth 16 To be precise.2 –0.8 percent) was below the level consistent with stable inflation.1 1.0 –1.2 –0.2 0.4 1.5 –0. Current Population Survey. b 1953:Q2 and 2007:Q4 are business-cycle peaks. column 4).3 3 Employed share of the labor force –0. since peak 1953:Q2 to 2007:Q4b 2007:Q4 to 2011:Q3 2011:Q3 to 2022:Q4 2007:Q4 to 2022:Q4 1 Civilian noninstitutional population aged 16+ 1. which is expected to remain stable at around 5.2 2.8 –0.5 All contributions are in percentage points at an annual rate.4 percent per year over the next 11 years (line 3. but some of this reduction is projected to be offset as the labor market improves.1 percent a year between now and 2022.2 0. The employed share of the labor force—which is equal to 1 minus the unemployment rate—is expected to increase 0.1 –0. The Year in Review and the Years Ahead | 77 .0 1. Taking into account all of these effects.3 2.0 4 Ratio of nonfarm business employment to household employment 0. between 2007 and 2022 (line 3.9 2. Note: Population. changes in the employment ratio reduce growth in real GDP by 0. 16 Because of the recession. peak-topeak Recent history. and productivity come from the Labor Productivity and Costs database maintained by the Bureau of Labor Statistics.0 2 Labor force participation rate 0. Source: Bureau of Labor Statistics.0 –0. workweek.2 7 Ratio of real GDP to nonfarm business output –0.5 2. Bureau of Economic Analysis.5 2.4 9 Memo: Potential real GDP 3. on balance. since peak Forecast History and forecast. sufficient to account for the entire decline in the labor force participation rate for this age group over this period (Figure 2-16). nonfarm business) 2.0 –1. National Income and Product Accounts. because the unemployment rate in 2007:Q4 (4. Nonfarm business employment.1 1. labor force.1 0.3 8 Sum: Actual real GDP 3.1 2. The share of young adults aged 16 to 24 enrolled in school rose well above its trend between January 2008 and December 2011.2 0. and household employment have been adjusted for discontinuities in the population series.

 seasonally  adjusted     100 90 2011:Q4      80 70    Labor  force  participation     and  enrollment  rate     Labor  force     participation  rate     60 50 Educational  enrollment  rate     40                   2002:Q1 2004:Q1 2006:Q1 2008:Q1 2010:Q1 2012:Q1           Note:  Enrollment  rate  is  defined  as  the  number  of  those  enrolled  in  school  but  not  in  the  labor  force         as  a  share  of  the  population.3 percent a year. should contribute to productivity growth in the coming years. Labor productivity is projected to increase 2. column 1). on average. The ratio of real GDP to nonfarm business output is expected to subtract from GDP growth over the projection period (line 7. column 3). higher rates of school enrollment among young adults in recent years.  Shading  denotes  recession. such as government. over the long run (line 5.     Source:  Bureau  of  Labor  Statistics.  2002–2011   Percent. The elevated rate of long-term unemployment poses some risk to the projection insofar as the human capital of workers may deteriorate with prolonged unemployment.3 percent a year over the forecast horizon (line 6. column 3). but the contribution is projected to turn positive during the projection period. as noted. consistent with its long-run trend. column 3) even though it has declined 0. and nonprofit institutions. On the other hand.;  CEA  calculations. The workweek is expected to hold steady as a natural labor-market adaptation to the anticipated decline in the labor force participation rate.Figure  2-­16   Labor  Force  Participation  and  Educational  Enrollment. a slight increase over the average growth rate from 1953–2007 (line 6.   during the past four years. 78 | Chapter 2 . reflecting an accounting convention that holds productivity growth to zero for government. households. The workweek is projected to remain roughly unchanged during the projection period (line 5. column 1).     Ages  16–24. The nonfarm business sector generally grows faster than other sectors.

column 3). as credit conditions continue to ease The Year in Review and the Years Ahead | 79 .S. real GDP is projected to rise at an average 3. on average. just short of the growth rate of potential real GDP of 2. The housing market began to show signs of life in 2011. The projected slowdown in real potential GDP growth reflects the lower projected growth rate of the working-age population and the aging of the baby-boom cohort into retirement. real GDP is expected to rise 2. Conclusion The U.Summing each of these pieces. In the Administration’s 2013 Budget forecast. over the 15-year period from 2007 to 2022. is how quickly real GDP will return to its potential level. economy can recover from a severe shock to return to this underlying trend level. column 3). Real potential GDP is projected to rise 2.2 percent a year (line 8.5 percent a year in 2007–2022 (line 8. and is likely to have a positive effect on the economy. Actual GDP is expected to grow faster than potential GDP primarily because of the projected rise in the employment rate (line 3. economy continued to recover in 2011 from the severe effects of the financial crisis and the deep recession that followed. however.4 percent a year. The rise in real GDP since the beginning of the recovery has been roughly similar to the trend in both following the 1991 and 2001 recessions. the recovery appears most likely to proceed at a moderate pace over the coming year. The effects of the financial crisis and the 2007–09 recession.1 percent a year over the projection period (line 8. while private payroll growth came sooner and more swiftly than in the beginning of the recovery from the 2001 recession.S. The historical record supports this forecast. The full recovery of real GDP during the decade following the Great Depression suggests that the U. with the gains in output and employment increasing in subsequent years. though from a low base. are expected to have little effect on the level of potential real GDP by the end of the projection. notably faster than the 2. As 2012 begins.5 percent because the economy in 2007 is estimated to have been above its trend.S. column 1). the U. more slowly than the long-term historical growth rate of 3. economy catches up to potential real GDP in the second half of the forecast period. Smoothing through the effects of the recent business cycle. column 4). column 3) as millions of workers who are currently unemployed find jobs. in contrast. because the recession is not expected to permanently reduce any of the demographically-determined elements of long-term growth. An important question addressed in the budget outlook.5 percent annual growth rate for potential real GDP (line 9.

and confidence improves. and highlights the importance of sustaining the recovery. much work remains to restore the U. Only a prolonged and robust expansion can eliminate the large jobs deficit that opened up during the recession.S. With millions of Americans still unemployed. The fact that private job growth has closely tracked the pattern of the early 1990s expansion is encouraging. and the economy as a whole has considerable room to grow. Ensuring this outcome requires policies that both restore balance to the economy by increasing aggregate demand and guard against the types of excesses that led to the crisis in the first place. 80 | Chapter 2 . economy to full health.

sharp deficit reduction serves as a drag on aggregate demand and threatens to disrupt ongoing economic growth. In the near term. even in an economy as dynamic and robust as our own. budget deficits and spending programs are reported in fiscal years and tax receipts are reported in calendar years. the Administration was given an annual deficit of $1. and discourage private domestic investment. Policymakers are charged with the dual imperative of safeguarding the ongoing economic recovery while simultaneously ensuring that future generations are not burdened with excessive debt and that future government borrowing does not unduly crowd out private investment. In the long term. In February 2010. the President signed the Statutory Pay-As-You-Go Act. rising health care costs.C H A P T E R 3 RESTORING FISCAL RESPONSIBILITY W hen President Obama took office three years ago. Recognizing the economic risks associated with sustained large budget deficits. the President and Congress enacted a $1 trillion deficit-reduction package in the Budget Control Act of 2011.3 trillion and a projected 10-year fiscal shortfall of more than $8 trillion.2 trillion 1 In this chapter only. Last summer. a law that restored the commonsense principle of paying for permanent mandatory spending or tax changes—a rule that had lapsed or been waived during the previous decade. In March 2010. These seemingly conflicting concerns make deficit reduction a crucial but delicate endeavor.1 The Administration has taken many steps to restore fiscal responsibility because large and sustained fiscal imbalances pose one of the Nation’s greatest economic challenges. the President signed the Affordable Care Act. the Obama Administration has made deficit reduction a priority. raise interest rates. with a minimum $1. unless otherwise noted. 81 . persistent budget deficits can reduce national saving. which both expands health coverage and directly addresses one of the key drivers of the long-term deficits.

The President’s plan acknowledges that balancing the budget on the spending side of the ledger alone would hurt programs that help the middle class and those trying to get into it and put at risk other national priorities. bring the budget into primary balance so that revenues cover all noninterest expenditures. such as investment in infrastructure and education. the deficits moving forward are expected to remain at unsustainable levels absent additional policy actions. describes projected budget outlooks. Although the Affordable Care Act and the Budget Control Act were the most aggressive Federal deficit-reduction legislation in years. These steps represent a radical departure from the budget policies of the previous administration.in further reductions scheduled to follow. it is critical for Congress to work with the Administration to return the Nation to a sound fiscal outlook. Determinants of Current Deficits Under current law and established budget policy. As a way forward. This chapter highlights the sources of budget deficits and public debt. a balanced approach that recognizes the need to prioritize spending initiatives while aligning revenues with current spending by asking the highest-income Americans to contribute to deficit reduction. Because budget projections show continued fiscal imbalances. and wars in Iraq and Afghanistan—all enacted without being offset by cuts or additional revenue raised elsewhere in the budget. the annual budget would improve rapidly as the economy recovers. and reduce debt as a share of the economy.3 trillion in 2011 (8. as well as closing loopholes for corporations and special interests. The fiscal shortfall is not primarily driven by countercyclical policies enacted in response to the Great Recession. which included a series of sweeping tax cuts skewed toward the wealthiest. much work remains to be done. the President has laid out a balanced plan that would—in combination with the Budget Control Act and other deficit reduction measures taken since the beginning of 2011—cut the 10-year deficit by more than $4 trillion. falling from $1. which are reflected in the adjusted baseline of the Office of Management and Budget (OMB). Instead. and outlines the Administration’s deficit-reduction plan. recent deficits are principally the result of spending policies enacted during the previous 82 | Chapter 3 . Despite these projected improvements. establishment of the Medicare prescription drug benefit program. The prospective fiscal imbalances have been decades in the making.9 percent of GDP).7 percent of GDP) to $662 billion in 2014 (3. Restoring balance will necessitate bold and difficult reforms in government programs.

and part to the slow rebound of wages. and corporate profits—the income base from which tax receipts are primarily derived.5 trillion accumulated between 2001 and 2011. enacted in 2003. Wars in Iraq and Afghanistan. sweeping cuts in income and estate taxes. Tax cuts initiated in the previous decade.6 trillion between 2001 and 2011 (CBO 2001). The Medicare Part D prescription drug benefit. have reduced revenue and increased interest costs by nearly $3. substantially more costly than initially announced by the previous administration. has raised Medicare spending by over $250 billion through calendar year 2011. In 2011. The American Recovery and Reinvestment Act (the Recovery Act) of 2009 cost $833 billion overall. For example. Part of this revenue shortfall is attributable to temporary tax cuts designed to aid the economy and create jobs. including those for the wealthiest individuals. far below the postwar average of 17. following several years of budget surpluses. policies enacted to revitalize the economy and stabilize the financial system have contributed only moderately to deficits over the past several years. sweeping tax cuts initiated in 2001 and 2003. While temporary policies designed to increase aggregate demand. Federal tax receipts amounted to just 14. the Temporary Payroll Tax Cut Continuation Act of 2011. improve business investment.7 percent.2 and economic conditions. have helped drive down tax revenues to historical lows. Other countercyclical measures.administration. which temporarily extended the payroll tax cut. which have often been offset by other budget measures. But several ongoing tax policy trends that long predated the financial crisis have also put downward pressure on tax revenue. while the most recent Troubled Asset Relief Program (TARP) cost estimate is just $68 billion. have also carried relatively small costs. the Congressional Budget Office projected a cumulative surplus of $5. including the 2 percentage point payroll tax reduction for workers. In particular. and jump-start employment contributed to annual deficits immediately following the financial crisis. Restoring Fiscal Responsibility | 83 . with a substantially waning impact after 2012. As noted. and a cumulative deficit of $6. Increased interest costs associated with these programs have driven deficits even higher. they are temporary emergency measures projected to have a minimal effect on annual budget deficits going forward.4 percent of GDP. they are less costly than the previous decade’s spending and tax policies. initially enacted in 2001 and 2003. most importantly. investment income. No surplus was realized after 2001. unemployment 2 These policies contributed to a historic gap between projected and realized budget outcomes. added $1. In 2001. By comparison.3 trillion in military spending between September 2001 and December 2011.0 trillion between 2001 and 2011 (Ruffing and Horney 2011). spending policies enacted in the early part of the previous decade are one of the primary causes of recent deficits.

600 War  costs Bush-­era  tax  cuts Recovery  measures TARP.  the  projections  presented  in   this  figure  may  differ  from  those  presented  by  OMB. The connection between unused countercyclical fiscal policy and stunted economic growth has been shown time and again.400 1.000 800 600 400 200 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Note:  Based  on  CBO  budget  projections. incorporate both the direct economic growth owing to countercyclical measures undertaken by the Obama Administration and the subsequent projected economic recovery. included offsets that made the bill deficit neutral. financial stabilization measures. What the figure does not show is the path the deficit would have taken had the Great Recession persisted.       84 | Chapter 3 . to Japan’s Lost Decade.benefits.  and  Freddie Economic  downturn Deficit  without  these  factors 1. and economic stimulus initiatives. to international attempts to enact austerity measures during economic recessions.200 1. economic downturns. recessions become even more severe (Auerbach and Gale 2010). As painful as the past three years have been Figure  3-­1   Selected  Components  of  Deficit  Projections:  2009–2019   Billions  of  dollars   1. From the Great Depression. research has shown that in the absence of countercyclical measures.  CBO  employs  different  economic   assumptions  and  methodology  than  OMB. The projections in the figure. Figure 3-1 compares the incremental cost of various post-2001 determinants of the deficit. or if the financial system had remained in turmoil. including the wars in Iraq and Afghanistan.  Fannie. and certain about-to-expire Medicare provisions regarding physician payments. based on Congressional Budget Office (CBO) data. If economic growth had turned negative instead of growing throughout 2009–11. the tax base would have eroded further and the fiscal crisis would have been more severe.  As  a  result.   Source:  Ruffing  and  Horney  (2011). 2001 and 2003 tax cuts.

including the American Opportunity Tax Credit. can drive effective tax rates far below marginal tax rates. in 2003. in large part because of the cut in the top rate from 39.for the U. Effective tax rates for the top 1 percent have varied moderately over the past five decades. preferential rates on longterm capital gains and dividends were cut to historical lows of 15 percent. as indicated in Figure 3-2.6 percent to 35. the failure of tax revenue to match Federal spending remains a primary concern. economy. the expansion of refundable tax credits for families with children. Under this methodology.000 taxpayers pay barely a quarter of their income in Federal taxes today—half of what they would have contributed in 1960. While demographic trends and rising health care costs pose serious challenges on the spending side of the ledger. In contrast.0 percent.S. such as preferential rates for investment income or deductions for particular activities. are simply the amount of taxes paid as a share of total income. Although trends in effective tax rates are attributable to a variety of factors. When the Economic Growth and Tax Relief Reconciliation Act of 2001 cut statutory income tax rates. as Figure 3-3 Restoring Fiscal Responsibility | 85 . Falling Effective Tax Rates on Upper-Income Taxpayers Effective tax rates. Several of the President’s tax policy initiatives. effective tax rates on middle-income Americans rose slightly in the 1960s and 1970s. In stark contrast. Treasury data show clearly that high-income families benefited the most from the 2001 and 2003 tax law changes. marginal rates are defined as the taxes paid on an additional dollar of earnings. Two years later. In order to isolate the effects of changing tax policy on effective tax rates. countercyclical measures brought the downturn to a quicker end and have reinforced the recovery. and then remained mostly flat between 1980 and the start of the Obama Presidency. and the cut in the payroll tax. also known as average tax rates. a useful exercise is to track effective tax rates holding income characteristics constant. the wealthiest taxpayers have seen their effective tax rate plummet over the past five decades because of changes in Federal tax policies. Tax preferences. again resulting in large benefits for the upper-income taxpayers who realize the bulk of investment income. As a result.  For example. peaking in about 1980 before falling back to lower levels between the late 1980s and the present. have provided tax relief for middle-income Americans. the tax cuts initiated under the previous administration had a notable impact. effective tax rates have varied over time with periodic tax reforms and a shift in the composition of income among high earners toward business and capital income. The wealthiest 1-in-1. high-income taxpayers benefited disproportionately.

    illustrates. a high-income taxpayer who is compensated primarily with cash wages might remit in excess of 30 percent of income in payroll and income taxes. allowances for changing the timing of taxes paid. reversing a decade-long trend of unequal tax benefits for the wealthy.1 percent. while a high-income taxpayer who receives a large share of compensation in the form of interest in an investment fund (known as “carried interest”) would have a far lower tax rate. the President’s Fiscal Year 2013 Budget proposes to let the tax breaks expire for income above $250. For example. between 2000 and 2008.000 or less permanent.  and  CEA  calculations.1 percent of the income distribution than for the middleincome quintile.       Source:  Internal  Revenue  System  Statistics  of  Income  2005  Public  Use  File.Figure  3-­2   Average  Tax  Rates  for  Selected  Income  Groups     Under  a  Fixed  Income  Distribution. Average individual income tax rates fell by 4. but only by 3. while making the tax cuts for those families making $250.000 a year.7 percentage points for families in the top 0. income tax rates fell more for the top 1 percent and top 0.7 percent for middleincome families.  1960–2010   Average  tax  rate     60 Top  0. Effective tax rates on these taxpayers also vary widely because of the tax code’s differing treatment of various sources of income. 86 | Chapter 3 . To help reduce the deficit consistent with the notion of shared responsibility.  National   Bureau  of  Economic  Research  TAXSIM. Heterogeneity in Effective Tax Rates among High-Income Taxpayers The gradual drop in effective tax rates on high-income taxpayers is only part of the story. and various deductions and credits.1%   50 40 30 Top  1%   20 Middle   20%   10 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Note:  Average  Federal  (income  plus  Federal  Insurance  Contributions  Act)  tax  rates  for  a   sample  of  2005  taxpayers  after  adjusting  for  growth  in  the  National  Average  Wage  Index.

particular streams of income are excluded from taxation entirely. effective tax rates vary widely because of myriad deductions. Addressing the Role Of Exclusions and Deductions in Effective Tax Burdens As noted. while another one in ten is expected to pay 34. and corporate taxes) are expected to vary between 12.1 percent In 2012.  Figure  3-­3     Average  Individual  Income  Tax  Rates  by  Income   Quintile.  2000   20 15 Average  tax  rate.7 percent of their income in taxes. among taxpayers in the highest income quintile.     Source:  Department  of  Treasury.5 percent) paid less than 10 percent of their income in Federal income taxes. as noted. The variation is perhaps most evident at the very top of the income distribution.8 percent) paid in excess of 30 percent. That is. Moreover.1 percent of their income in Federal taxes and another 10 percent are expected to pay more than 29. 30 of the 400 highest-earning taxpayers (7.  2008   10 5 0 -­5 -­10 1st 2nd Middle  4th Highest Top  10 quintile quintile quintile quintile quintile percent Note:  Quintiles  are  based  on  adjusted  gross  income.3 percent for those at the 90th percentile.3 percent (the remaining 80 percent will pay somewhere in between the two rates). and preferences in the tax code. Among those in the top 1 percent. payroll. while 59 (14. In 2008. exemptions. the most recent year for which data are available.1 percent for those at the 10th percentile (in terms of effective tax rates) to 29.       Top  5 percent Top  1 percent Top  0. the variation in rates is even starker.  2000  and  2008   Average  tax  rate   30 25 Average  tax  rate.6 percent or more (see Table 3-1). one in ten taxpayers is expected to pay less than 8. For the top 1 percent of taxpayers. 10 percent of all high-income taxpayers are expected to pay less than 12. the expanding Restoring Fiscal Responsibility | 87 . But. effective tax rates (including income.

For the lowest income quintile.0 5.2 17. the Alternative Minimum Tax (AMT) was enacted in an attempt to combat the low rates paid by some high-income taxpayers. the President has proposed tax reform that would ensure fair incentives for the middle class.Table 3-1 Distribution of Average Federal Tax Rates Family cash income group Average rate at each breakpoint in the rate distribution 10th 25th Median 75th 90th Lowest quintile –13.0 5.0 14.4 13.5 Fourth quintile 7. and payroll tax.7 0. array of such tools within the tax code has enabled some high-income taxpayers to reduce their tax liability dramatically.5 7.6 Total Top 1 percent Note: Calculations assume 2012 tax law with an AMT patch and 2012 income levels.3 0. Source: Department of Treasury. Decades ago. In addition.3 34.1 17. In addition.4 21.7 21. As a way to combat this “upside-down” system of tax incentives. deductions and exclusions from taxable income are typically worth much more to high-income households—as much as two to three times more— than to low. The President’s proposed Buffett rule would ensure that Americans making more than $1 million a year would pay no less a share of their income than middle-income families pay—in particular. and includes individual income tax. the calculation of average rates and the distribution of average rates do not include families with negative income.4 13.7 5.and middle-income ones.7 0.2 12.2 22. (For information on how to evaluate effective tax rates based on their progressivity.1 15.2 29.5 20. the President has proposed several principles for tax reform. Moreover.2 Highest quintile 12. as well as on those with many children (Burman 2007). because the value of a deduction or exclusion is a function of a taxpayer’s marginal tax rate. but its poor design has caused it to fall primarily on upper-middle-income families from high-tax states.4 23.0 29. the policies presented in the Administration’s Fiscal Year 2013 Budget significantly improve 88 | Chapter 3 .9 Middle quintile 1.1 17.0 20.6 32.9 26. The Fiscal Outlook Without the pro-growth policies of the past three years. see Economics Application Box 3-1).7 25. helping to equalize the value of tax expenditures across the income distribution.0 8. no less than 30 percent of their income—in taxes. corporate income tax.5 Second quintile –8. These families are included in the total.3 26. future budget shortfalls would be even more severe.3 20.

The President’s plan to rebalance revenue streams and spending priorities is detailed later in the chapter. extension of the 2001 and 2003 tax cuts. Nonetheless.  Figure  3-­4   Projected  Medium-­Term  Budget  Deficits. this adjusted baseline remains problematic and represents a fundamental imbalance between government spending and revenues. This improved fiscal outlook is due in large part to a recovering economy and the fiscal steps the Administration has already taken. and extension of the estate tax parameters at their current levels.  2011–2022   Percent  of  GDP   10 9 8 7 6 5 4 Adjusted  baseline   3 2 1 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Note:  See  text  for  policies  incorporated  in  OMB's  adjusted  baseline.   Source:  Office  of  Management  and  Budget  (2012a). and projected long-term public debt continues to rapidly decline over the course of the Obama Administration. including the Affordable Care Act and the Budget Control Act. Medium-Term Budget Projections Under the OMB adjusted baseline. The scenario includes the continued indexation of AMT parameters. medium-term deficits gradually decline as a share of GDP—projected deficits fall from 8.     Restoring Fiscal Responsibility | 89 . as well as a continuation of current levels of spending for Overseas Contingency Operations and physician pay rates under Medicare.7 percent of GDP in 2011 to 4.projected medium-term deficits relative to an adjusted policy baseline. This adjusted baseline represents a medium-term scenario in which current policies continue throughout the decade.7 percent of GDP in 2022. as Figure 3-4 indicates.

000 (a change of just 20 percent). a tax cut might reduce taxes paid by low-income households from $100 to $50 (a change of 50 percent).000 to $400. and reduce taxes paid by high-income households from $500. but this measure is actually inconclusive because it tells us nothing about the change in average tax rates. and progressivity. Some forms of compensation—such as employer contributions to a retirement account or health insurance premiums paid by an employer—may not be considered income for tax purposes but might in principle be considered as income for measuring taxpayer resources. For example.and middle-income households relative to others or raises average tax rates more for high-income households relative to others. impact on economic activity. Fairness is the essence of progressivity. the recent 2 percentage point cut in the payroll tax is considered progressive because it reduces average tax rates more for low. Along these same lines. which shows the cumulative 90 | Chapter 3 . The definition of income or well-being can also be important when measuring progressivity. can be misleading. Similarly. Other measures of progressivity. Economists typically define a progressive tax as one that has average tax rates that increase with income. such as measures that refer strictly to dollar changes in taxes paid or to the percentage change in taxes paid.and middle-income families compared to high-income families. income transfers such as unemployment compensation or Social Security benefits could be included in income when measuring progressivity. For example. under a progressive tax code. A progressive tax change is one that lowers average tax rates more for low. Some might argue that this change is progressive because it reduces taxes paid by lowincome households by proportionately more than it reduces taxes paid by high-income households. Progressivity is the measure of how a particular policy affects households with differing levels of income or resources. ease of compliance and administration. metrics that focus on the share of taxes paid are not useful because they do not incorporate information on average tax rates by income group.Economics Application Box 3-1: Measuring Progressivity in the Tax Code Tax changes are typically evaluated based on several key criteria. including efficiency. many taxes—particularly income taxes—are designed to ensure a lighter tax burden for households with less income and lower ability to pay. simplicity. higher-income taxpayers devote a higher share of their income to taxes than other taxpayers. The extent to which the tax code equalizes income is expressed graphically by the Lorenz curve in the box.

by making after-tax income more equal than before-tax income. CBO (2011b) projects that an ongoing 0.9 trillion in expected deficits between 2009 and 2019 (as shown earlier in Figure 3-1). the closer the Lorenz curve to that line of equality.  2007   Cumulative  share  of  income   100 90 80 70 60 Line  of   equality   50 40 After-­tax   income   30 Before-­tax   income   20 10 0 0 20 40 60 Cumulative  share  of  population           Source:  Congressional  Budget  Office  (2011a). Deteriorating economic conditions resulting from the financial crisis are one of the most important determinants of projected medium-term deficits. accounting for $3. The 45 degree line represents a perfectly equal distribution of income. Income  Concentration. not matched with a subsequent boost in GDP in later years. even the after-tax Lorenz curve was well below the 45 degree line. Similarly. Budget outcomes are sensitive to weak economic conditions. OMB (2012b) projects that a 1 percentage point drop in GDP growth in 2012.distribution of income before and after taxes. meaning that the distribution of after-tax income was highly skewed towards the highest-income taxpayers. the more equal the distribution of income. the tax code helped to improve the progressivity of the income distribution. would increase the deficit by $720 billion over 10 years.     80 100 The Vital Role of Economic Growth in Future Fiscal Outcomes Budget discipline is nearly impossible to achieve in practice without healthy economic growth. In 2007. as illustrated by the graph.1 percentage point Restoring Fiscal Responsibility | 91 . However. A progressive tax code is one that shifts the income distribution closer to the 45 degree line.

Importantly. Users may create custom tables using a table wizard application. such as migration patterns. Statistics derived from the SOI provide a rich source of information for policymakers. 92 | Chapter 3 .Data Watch 3-1: Data from the IRS Statistics of Income Division The Statistics of Income (SOI) Division of the Treasury Department’s Internal Revenue Service produces informative annual statistics. central to the rationale for countercyclical measures like the Recovery Act and the American Jobs Act. the Budget Control Act of 2011 reduced Federal spending by $1 trillion over the next decade by making cuts to discretionary spending. in fact. researchers.2 trillion in deficit reduction scheduled to 3 The President’s proposed American Jobs Act is deficit-neutral. Extensive data also are available on businesses.-owned corporations operating in other counties. including corporations. all provisions are more than fully paid for. Improvement in Long-Run Budget Projections Although the need for long-run deficit reduction is evident. and public interest groups. Economic growth leads to a sound fiscal outlook. for example.000 detailed tables and regular reports are available to the public online through the Tax Stats pages located at www. Periodic special reports have examined topics such as pensions. The link between economic growth and fiscal stability is. As noted.S. business people.3 the cost can be considered a down payment on future economic growth. decrease in real GDP growth compared to its baseline forecast will add $310 billion to the projected 2012–2021 deficit. SOI painstakingly safeguards the confidentiality and anonymity of the underlying information it draws on.S. SOI produces regular reports on both foreign-owned U. The resulting information is an important input to the National Income and Product Accounts and has been invaluable for the evaluation of economic and tax policies. and sole proprietorships. recent Administration policies have already helped to partially close the long-run fiscal imbalance. which in turn can lead to a more stable fiscal policy. corporations and U. More than 14. In response to increased globalization. as well as for business decisions. among others. foreign earned income.irs. Although the countercyclical measures in these bills may impose an initial fiscal cost. One advantage of SOI statistics is that they are available for a long period of time: historical data series cover the period from 1916 to the present. Of particular interest are tabulations of selected items by county and ZIP Code. partnerships.gov. and noncash charitable contributions. with an additional $1.

mean that current spending is no longer adding to the debt. which will fund and test new strategies for providing high-quality care more efficiently. economists have become increasingly concerned about the consequences of persistent deficits. (Chapter 7 discusses Health Insurance Exchanges as well as other provisions of the Affordable Care Act and existing health programs. The Medicare Trustees estimate these gains to be substantial.come. The net economic effect of budget deficits depends critically on the Restoring Fiscal Responsibility | 93 . by the middle of this decade. the Administration maintains its view that short-term economic support and long-term fiscal responsibility can be complementary policies. Although reducing the deficit is a difficult task. Not all types of deficit spending yield identical effects on the budget. As the debt-to-GDP ratio has steadily risen. and the Independent Payment Advisory Board. Health care legislation passed in 2010 is a key factor to gains in longrun deficit reduction. The Affordable Care Act addressed the Nation’s most profound long-run budget challenge by limiting the growth in health care costs in several ways. The projections presented in this chapter assume that the provisions of the Affordable Care Act are fully implemented. long-run budget projections would be substantially worse. which will recommend policies to reduce the growth in Medicare spending. The Administration regards this legislation as a down payment on deficit reduction. It established the Center for Medicare and Medicaid Innovation. slowing the average longrange annual growth in Medicare spending per enrollee to just 0. and that debt is falling as a share of the economy.) The Act includes Medicare payment reforms that will restrain spending growth by rewarding improvements in health care productivity. and last fall proposed to Congress an additional $3 trillion deficit-reduction package that would. it is critical to the Nation’s future.2 percentage point a year above the growth in GDP per capita. But as a result of continued growth since 2009 and a gradual recovery from the financial crisis of 2008. These trends indicate that in the absence of recent health care reform. The Importance of Restoring Fiscal Sustainability Reducing the deficit while the economy continues to recover requires a delicate balance. limiting Medicare costs in the long run compared with previous law. Looming fiscal shortfalls can seem a distant concern in the face of high unemployment and sluggish economic growth. This growth rate is significantly smaller than previous Medicare Trustee projections—a reduction that is largely attributable to the Affordable Care Act. without limiting beneficiaries’ access to care.

” Several aspects of this finding warrant mention. some question whether the 90 percent threshold is appropriate for the largest economy in the world. Prolonged fiscal shortfalls also tend to raise interest rates. budget deficits drive interest rates higher by increasing the demand for saving. In fact. Of perhaps greater concern is the potential for prolonged budget deficits to impact domestic private investment via elevated interest rates. Second. especially given the ongoing appetite of foreign and domestic investors for Treasury debt and the relative attractiveness of investment in 94 | Chapter 3 . studies often assume that about 25 percent of the increase in the budget deficit is met with increased private-sector saving (Elmendorf and Liebman 2000) and about 20 to 40 percent through increased foreign lending (Engen and Hubbard 2005). rather than the other way around (Irons and Bivens 2010). can yield positive fiscal returns in the future.characteristics of the underlying spending. “high debt/GDP levels (90 percent and above) are associated with notably lower growth outcomes. Higher interest rates depress interest-sensitive consumption (such as housing and durable goods) and diminish asset values and household wealth. and additional lending by foreign investors.basis-point rise in interest rates (Gale and Orszag 2003). As such. The consensus view among economists is that a 1 percent increase in the deficit relative to GDP leads to a 20. All else equal. and education. higher budget deficits can be financed by a combination of reduced domestic private-sector investment. higher interest rates also encourage domestic and foreign savers to increase their net investment in the United States. increased domestic saving. First. Public borrowing to finance productive investment. According to research by economists Carmen Reinhart and Kenneth Rogoff (2010). A more productive private sector will lead to higher profits and stronger wage growth. technology. Although there is no consensus among economists on the relative share of each of these factors. Today’s historically low interest rates may make that link between interest rates and deficits seem tenuous. which will ultimately prove to boost revenues and reduce spending in later years. some have theorized that stagnant growth leads to higher levels of debt. An active research agenda has considered how government debt affects the economy. but in typical economic circumstances. high debt does not necessarily cause stagnant growth. higher interest rates can divert savings away from productive domestic investment towards government securities. government spending that makes the private sector more productive is distinctly different from spending devoted to consumption in the current period. Thus.to 60. including investment in infrastructure. although slow growth and debt are correlated.

The cornerstone of the President’s approach to deficit reduction—and perhaps the way in which it differs most from plans offered by others—is the balance it strikes between sustainable tax revenues and spending cuts. are paid for by eliminating ineffective tax cuts to high-income taxpayers. The President’s Balanced Approach to Deficit Reduction The President’s proposed framework for deficit reduction. infrastructure. Veterans continue to receive the support they Restoring Fiscal Responsibility | 95 . while tax expenditures on the Nation’s wealthiest taxpayers are limited. Medicare and Medicaid are strengthened. More importantly. Social Security continues to provide a reliable. laid out in the Fiscal Year 2013 Budget. The balanced approach of the President’s Budget preserves the basic functions of the Federal Government. A long-term commitment to sound fiscal policies will reassure investors that the government can service its debt. and personal saving. Ineffective spending programs are eliminated. economists agree that confidence is paramount in the relationship between government debt and financial markets. see Data Watch 3-2 for further explanation). the President’s Budget represents a critical first step toward a stable and prosperous economic future and ensures that the American economy will remain competitive and vibrant for decades. Deficit-reduction measures are phased in gradually to avoid disrupting the economic recovery. Targeted investment initiatives. ensuring health care for the nation’s elderly. A deficit-reduction framework based on spending cuts alone would preclude the provision of basic protections provided to the Nation’s most vulnerable citizens and investment in the Nation’s future. Most importantly. and individuals with disabilities. sound fiscal policy and a commitment to living within our means and investing in the future will ensure better access to capital by domestic investors. The military continues to receive funding to serve American interests at home and abroad. low-income families. rather than total debt (including intragovernmental debt. represents a balanced approach along several dimensions.the United States. Finally. some have argued that the key factor in measuring the impact of debt on the economy is debt held by the public. steady stream of income for retirees. Although the precise impact of government debt on economic growth is subject to debate. ensuring that the budget deficit will fall to a sustainable level in the next 10 years and beyond. In sum. as well as higher standards of living for future generations. including those for education. the President’s Budget charts a sustainable fiscal course.

including securities issued on behalf of the government (such as Treasury securities).2 trillion. Economists widely recognize public debt as the more relevant measure since it is government borrowing from the private sector that can be expected to interact with credit markets. currency. mutual funds. and corporations. Total government debt is the sum of public debt and intragovernmental debt—government debt held in government accounts. U.Data Watch 3-2: Measuring Government Debt across Countries Differences in government accounting practices and in the types of assets held by central governments complicate the comparison of government debt across countries. Net debt is measured as gross debt minus government-owned financial assets.S. for example. however.S. These complications can lead to confusion over the most appropriate measure of government debt and the relative levels of debt for different countries. In most Organisation for Economic Co-operation and Development (OECD) countries. budgetary conventions give rise to large accumulations of such debt. the difference is stark: gross government debt equaled 220 percent of GDP in 2010.5 trillion was held by the public and $4. such as government securities held in the U. Social Security and Medicare trust funds.8 trillion was intragovernmental debt. pension funds. The OECD presents measures of general government debt. while net government debt was just 117 percent of GDP. and central government debt. Including intragovernmental debt when making international comparisons leads to an exaggerated impression of government indebtedness in the United States and Canada relative to other OECD nations. A second source of confusion is the distinction between gross debt and net debt. Both of these measures carry economic significance. 96 | Chapter 3 . A final source of misunderstanding concerns the particular government sector being measured. The importance of this distinction varies across countries. and liabilities to government employee pension funds. One source of misunderstanding is the distinction between public debt and total government debt. Public debt refers to government debt held by private investors. debt totaled $15. there is little intragovernmental debt. In the United States and Canada. including individuals. of which $10. but the distinction matters insofar as central governments generally are not liable for debt incurred by other levels of government. In Japan. At the end of December 2011. The OECD measures gross debt as total liabilities outstanding. Intragovernmental debt is similarly important in Canada. which encompasses debt at all levels of government. including State and local governments in the United States.

The Administration proposes to achieve $1 trillion in discretionary spending savings over the next 10 years through the budgetary caps established by the Budget Control Act. While the President’s Budget makes and maintains critical investments in areas important to growth and competitiveness. a 10 percent income tax credit to encourage small businesses to hire new employees and to increase wages. $30 billion in deficit reduction through cutting or consolidating ineffective. a $60 billion fee on large financial firms. incentives to private industry to upgrade offices. As the President’s deficit-reduction strategy cuts long-run deficits. stores. Among those proposals are an initial $50 billion investment in roads. it also institutes broadly shared sacrifices to reduce the deficit.000 schools. the President signed into law several key parts of the American Jobs Act. and innovation continue to be a priority.000 jobs through 2014 as workers spend their extra income. duplicative. the President proposes pushing ahead with elements of the American Jobs Act and with additional job-creating measures. and a reform of the Federal civilian workers’ retirement plan that saves $21 billion over the next decade. or outdated Federal programs. infrastructure. adjustments to the Medicare and Medicaid programs to make them more efficient and cost-effective. one of the boldest pieces of pro-employment legislation in decades. Extending the payroll tax cut into 2012 added an average of $40 to each paycheck of 160 million American workers. reauthorization of Clean Energy Manufacturing Tax Credits to spur the creation of manufacturing jobs Restoring Fiscal Responsibility | 97 . and runways through surface transportation reauthorization legislation. At the end of 2011. adopting a new defense strategy that cuts defense spending by 9 percent relative to the Fiscal Year 2012 Budget. funds to modernize at least 35. rails. a renewed Build America Bonds program to help finance the modernization and upgrading of America’s infrastructure. limiting funding for Overseas Contingency Operations to $450 billion through 2021. aid to states and localities to rehire teachers and first responders. and commercial buildings through the Better Buildings Initiative. If continued through 2012 as the President favors. universities. To bolster labor market conditions and spur near-term economic growth. additional incentives for Americans to invest in energysaving home improvements through the Homestar Bill. the halting of an automatic increase in student loan interest to ease the burden on students. including a short-term extension of both the payroll tax cut and extended unemployment benefits that were set to expire at the end of 2011. it also supports the economic recovery. Investments in education. Many other deficit-reduction plans fall short in these areas.deserve. hospitals. The cornerstone of this support is the American Jobs Act. extended unemployment benefits will save 5 million job seekers from depleting their benefits and will create nearly 500.

broaden the tax base. The President’s deficit-reduction framework also calls for tax reform that will simplify the tax code and lower rates. and allow the high–income tax cuts of the past decade to expire. continuation of provisions to allow businesses to write off the full amount of new investments next year. the President has offered a detailed set of measures to close specific tax loopholes. 98 | Chapter 3 . and raise $1. cut unfair and unnecessary tax expenditures. observe the Buffett rule. the President’s Budget begins to reclaim the Nation’s fiscal future and restore fiscal responsibility by making balanced and necessary policy decisions.5 trillion from the highest-income Americans to be devoted to deficit reduction. a series of policies aimed at connecting unemployed workers in distressed communities with efforts to rehabilitate residential and commercial properties. increase growth and job creation in the United States. To begin a national conversation about tax reform. With this conversation. and enactment of Project Rebuild.in the advanced energy technology sector.

healing the housing market requires laying the foundation for balanced and sustainable growth. Although the housing market is showing signs of stabilization. The overheated housing market ultimately proved to be unsustainable. These trends. Indeed. housing is the single most important asset for a majority of American households. while repairing and improving the housing finance system that helped inflate the housing bubble. in turn. sustainable equilibrium supported by a prudent and robust financial framework. responsible policies are needed to assist the market in its transition to a new. the healing process is not complete in many parts of the country. as well as enabling them to send their children to local schools and use neighborhood amenities ranging from parks to retail stores to hospitals. These flows were converted into home mortgages by various financial intermediaries using lax underwriting standards and channeled through the financial system with an increasingly complex web of mortgage securitizations. and the more than $7 trillion in lost housing wealth. In this context. created unmoored expectations of continuous price growth that caused a spike in residential construction. and the return to more realistic levels has been very painful for the economy. prolonged and deepened the downturn and has been a headwind for the economic recovery. The bursting of the bubble was a culmination of a multiyear process of rapid growth in house prices fueled by excess capital flows into the United States. They also create demand and jobs as homeowners furnish their homes and invest in their 99 . As this process continues to unfold.C H A P T E R 4 STABILIZING AND HEALING THE HOUSING MARKET T he recession that began at the end of 2007 is inextricably linked with the bursting of the housing bubble that had built up over the previous decade. Houses generate a steady stream of consumption services for their owners. The effects of the drop in housing prices have been amplified by the uniqueness of housing as a financial asset class. The ensuing shock to financial markets.

further feeds this negative dynamic by depressing price expectations of potential homebuyers and lenders. houses also serve as an important form of collateral for other borrowing purposes. Left unchecked. along with mortgage debt in excess of home value. Setting the housing market back on track is a key step on the road to recovery. Yet housing presents several particular challenges. present a serious collective action problem. The large overhang of unresolved properties in distress.maintenance. and obstacles to refinancing. This chapter highlights some of these challenges. eventually concluding with distressed sales that exert further downward pressure on home prices and thereby deepen the amount of negative equity. such as homeowners. These conflicts and the need to recognize and allocate housing losses to various economic actors. such as equities. the resolution of which by the market has been sluggish. making housing the most levered asset in household portfolios and closely linking the health of the housing market to that of the broader financial sector. and mortgage servicers. investors. at best. including the widespread phenomenon of negative equity. By virtue of their tangibility. notably startup financing for small businesses. Perhaps most important. They include a poorly functioning system for loss mitigation of nonperforming mortgages and effective disposition of mortgaged properties. Some have argued that the best course of action is to rely on the market alone to work out the problems of struggling homeowners. and the toll they exact on American families and the economy in general. negative equity. this dynamic creates a dangerous possibility for housing prices to overshoot and fall below their fundamental values. 100 | Chapter 4 . Housing collateral attracts lender financing. Consequently. and foreclosed properties through liquidation. and it fails to recognize the many complex incentive conflicts that exist between purely private parties. declines in housing wealth can have a far greater effect on the economy than equivalent losses in other financial assets. posing a difficult hurdle for sustained economic recovery. a laissez-faire approach also disregards the spillover effects of large numbers of delinquencies and foreclosures on local housing markets. These deficiencies form a mutually reinforcing adverse feedback system in which negative equity raises the likelihood of delinquencies that often result in a drawn-out foreclosure process. many of which derive from an array of institutional frictions in housing finance markets that have been exposed by the enormous scale and scope of home price declines and from very long lags in the adjustment in the stock of housing. the financial system. inadequate origination of mortgage credit. This approach disregards the risk of overshooting the bottom. over the past several years.

such as the Federal Housing Administration (FHA). Price drops in some other states were much milder. where prices had gone up the fastest. and still others are carried out together with the government-sponsored enterprises (GSEs). This approach involves working in conjunction with market participants and housing regulators to address the lingering effects of the bursting of the housing bubble. Others are undertaken in conjunction with private investors. the only other instance of nationwide price declines since WWI. This drop in the national average masks significant regional variation. the decline in inflation-adjusted home prices was unprecedented in the post-World War I U. economic experience in both its severity and its geographic scope.The alternative to sitting back and waiting for these enormous challenges to work themselves out slowly and painfully is for the Government to engage in a series of coordinated. bringing it to the brink of collapse and ushering in a deep recession. measured. The Housing Crisis and the Initial Policy Responses After growing at a rapid pace through the early years of the new century. falling by a total of nearly 28 percent. By the beginning of 2009. Fannie Mae and Freddie Mac. the Federal Housing Finance Agency (FHFA). Stabilizing and Healing the Housing Market | 101 . but neither was as steep and prolonged as the current episode. for instance. In some states. and multifaceted policy actions. and the resulting losses quickly propagated through the global financial system. under the supervision of their regulator. And during the Great Depression. and the Department of the Treasury. This change in the path of housing prices triggered an initial wave of subprime mortgage defaults.S. much of the comparably-sized decline in nominal home prices was offset by a concurrent drop in general price levels. This chapter describes a set of existing and proposed policy initiatives that target many of the interlinked housing market problems. as shown in Figure 4-1. in a recent Federal Reserve Board white paper (2012). home price appreciation ground to a halt in the summer of 2006. Some of these policies are pursued through Government agencies. like Florida and Nevada. nationwide measures of home prices had declined for 30 straight months. as suggested. so the decline in real housing values was only about one-quarter as large as the one we recently experienced. Some of the regional housing recessions—notably in California and New England in the early 1990s—generated sharp and long-lasting price declines. the Department of Housing and Urban Development (HUD). Overall. housing prices plummeted by 35 to 50 percent from their peak.

By the first quarter of 2009. The dashed line depicts annualized growth in real levels of mortgage debt per homeowner household between 1991 and the third quarter of 2011. nonperformance rates among prime borrowers rose nearly threefold relative to their level in the first quarter of 2005 (from 2.6 percent four years earlier.;  the  Great  Depression  time  series  from   Shiller  (2005). from 10. Once the bubble burst. As households continued to accumulate mortgage debt in the expectation of ongoing housing appreciation. falling prices and poor economic conditions resulted in steep increases in delinquencies and foreclosures across a broad spectrum of American homeowners.  History   Real  price  level  compared  to  peak   110 100 Great  Depression  (national)   90 80 California  1990   70 Boston  1989   Current  (national)   60 50 0 2 4 6 8 10 12 Years  since  housing  peak   Source:  S&P/Case-­Shiller  Home  Price  Index. it reflected rising home prices and growing household leverage driven by extraction of home equity and shrinking down payment requirements. as evidenced by the price-to-rent ratio series (the sold line) in the same figure. the price-to-rent ratio accelerated rapidly to peak at 186 percent in the first quarter of 2006.     The unprecedented and ultimately unsustainable nature of housing market trends before 2007 is further highlighted in Figure 4-2.S.1 percent). About 1.7 million homes were at some stage of the foreclosure 102 | Chapter 4 .     Figure  4-­1   Housing  Busts  in  U. There were many factors behind the escalating household debt. Mortgage debt balances grew at a rapid pace from 2001 to 2007.2 to 6. housing was becoming less and less affordable. In part. After remaining in a narrow range between 100 and 120 percent for nearly two decades. while those for subprime loans spiked to nearly 25 percent. one that far exceeded growth in real income during this period.

000 Sept-­11   120. The HERA was followed by the Emergency Economic Stabilization Act in October of 2008.;  Department  of  Labor.000 200 180 140. A key part of Stabilizing and Healing the Housing Market | 103 . which established the Federal Housing Finance Agency. The Federal Reserve undertook a series of aggressive monetary policy actions and launched a number of programs to support liquidity and lending activity in key financial markets.000 20 0 0 Mar-­91 Mar-­94 Mar-­97 Mar-­00 Mar-­03 Mar-­06 Mar-­09 Source:  CoreLogic.000 100.000 160 140 120 100 Mortgage  value  per  home-­owning   household  ($2010)   (left  axis)   40. the new regulator of the GSEs with greatly expanded powers. the Legislative Branch.Figure  4-­2   Price-­to-­Rent  Ratio  and  Mortgage  Debt   Dollars                                                                                                                                                                                                       Price-­to-­rent  ratio   160.000 Price-­to-­rent  ratio   (right  axis)   80. Initial Policy Responses to the Crisis The broad meltdown in the financial sector called for a series of emergency responses by the Executive Branch. the Obama Administration implemented the Financial Stability Plan in February 2009. which established the Troubled Asset Relief Program.000 60. Market participants were deeply pessimistic about the future path for housing prices—the Case-Shiller index futures contracts traded in January of 2009 suggested that house prices were expected to fall an additional 10 percent by September 2010 (the dashed line in Figure 4-3). Other housing futures contracts traded in over-the-counter markets (not shown) were even more downbeat. and the Federal Reserve.000 80 60 40 20. In one of its first major policy actions. Congress passed the Housing and Economic Recovery Act (HERA) in July of 2008. and nearly 7 percent of total mortgage debt was seriously delinquent (more than 90 days past due).;  Bureau  of  Labor  Statistics.   process.  Consumer  Price   Index.

While HARP helped homeowners to hold onto their homes through more sustainable mortgages.75 trillion in March 2009. the American Recovery and 104 | Chapter 4 . the Treasury Department made an increased funding commitment to Fannie Mae and Freddie Mac. expanded the planned size of the program to $1. To help communities manage the destruction caused when the housing market collapsed. the MHA included the Home Affordable Refinance Program (HARP). which was intended to enhance refinancing opportunities for borrowers who had insufficient equity in their homes.Figure  4-­3   S&P/Case-­Shiller:  January  2009  Expectations  of  Future  House  Prices  and   Actual  Price  Index     Index:  Jan  2000  =  100   240 Actual   220 200 Housing  prices   implied  by  futures   contracts  traded  in   January  2009   180 160 140 2006 2007 Source:  Case  Shiller.       2008 2009 2010 the plan focused on maintaining the flow of housing credit and helping responsible homeowners stay in their homes through the Making Home Affordable (MHA) program. In particular. To help responsible households take advantage of these lower rates. other components of the MHA focused on restructuring mortgages of borrowers struggling to stay current on their loans. These actions have resulted in economically meaningful and long-lasting reductions in mortgage interest rates (Gagnon et al. the Home Affordable Modification Program (HAMP) provided a streamlined approach to modification of delinquent loans and offered monetary incentives and procedural safe harbors to industry participants. which had been placed in conservatorship six months earlier. In particular. which had previously announced a program to purchase up to $600 billion of GSE debt and mortgage-backed securities. The Federal Reserve. 2010) and credit availability (Fuster and Willen 2010).

000. servicers have undertaken nearly 2. This program allocated funds to state and local governments and nonprofit organizations to mitigate foreclosures and to pursue innovative local approaches to deal with the economic effects of abandoned properties. These programs have faced challenges from a number of structural problems in housing markets. these initial responses to the housing crisis have assisted several million households. The Recovery Act extended the first-time homebuyer credit established under HERA and increased it to $8. as well as uncertainty about legal liability in loan origination and loss mitigation practices. and Business Assistance Act of 2009. These problems have been greatly exacerbated by erosion in collateral values.000 loans refinanced though HARP. however. Of equal importance.7 million socalled “proprietary” modifications. widespread declines in housing prices resulted in more than a $7 trillion fall in aggregate housing wealth. Negative Equity: An Unprecedented and Pervasive Problem As noted. each of these original MHA programs has undergone substantial modification. which have increasingly fallen below the value of associated loans and put more than one in five mortgage borrowers “under water. Homeownership.2 million borrowers helped through various FHA loss mitigation interventions. For some homeowners. To date.” These dramatic declines in collateral necessitate eventual recognition of economic losses and allocation of such losses to various economic actors. which is estimated to total $700 billion. The scorecard also highlights 998. These problems include incentive conflicts that arose when loan servicing was separated from loan ownership in mortgage securitizations. has Stabilizing and Healing the Housing Market | 105 . described more fully in the following sections.Reinvestment Act of 2009 (the Recovery Act) provided additional support to the housing market by extending HUD’s Neighborhood Stabilization Program. HAMP provided a template for major servicers to follow in conducting their own modifications outside of the program. These losses were borne to at least some extent by most homeowners. more than 930. as well as nearly 1. as of December 2011. which began under HERA. The resulting “negative” equity. This program was extended further by the Workers. falling prices not only wiped out their housing wealth in its entirety but also pushed the value of their homes below the value of outstanding mortgages. many of which would not have occurred without the standards established by HAMP.000 homeowners had received permanent modifications under HAMP. As policymakers have increasingly focused on addressing these deficiencies. To date. The most recent housing scorecard released by the Department of the Treasury and HUD indicated that. putting the program on pace to reach the 1 million threshold early in 2012.

As a result. Negative equity has been associated with a number of problems over and above those caused by the more widespread loss in housing wealth. This negative equity resulted from large home price declines combined with a number of other factors. California.7 million (or 22 percent of) borrowers are under water.become one of the legacy hallmarks of the housing price bubble. 2011 Legend <  10% 10%  -­  20% 21%  -­  29% >  29% N/A Source: CoreLogic. Florida. Underwater borrowers find it difficult. Underwater households have weakened incentives to invest in their property. 106 | Chapter 4  . According to recent estimates. (For more on the decision to refinance. The aggregate negative equity is unequally distributed across the nation. Michigan. and Nevada—account for more than half of all underwater borrowers and of the aggregate amount of negative equity (Figure 4-4). since the expected gains from their investment are likely going to be absorbed by the lender. Six states with the highest incidence of negative equity—Arizona. Georgia. if not impossible. All of these states have experienced steep declines in house prices. to take advantage of record low interest rates through refinancing. as many as 10. The inability to refinance prevents households from lowering their monthly mortgage payments. It also undermines the effectiveness of monetary policy that aims to lower borrowing costs to businesses and households and thus encourage greater economic activity. because lenders and investors are unwilling to take on uncollateralized credit risk. underwater households underinvest Figure 4-4 The Distribution of Underwater Mortgages By State. see Economics Application Box 4-1).

has largely suggested that the adverse effect of negative equity on labor mobility—the so-called “house lock effect”—is fairly limited. The empirical evidence to date. the more likely households are to become delinquent (Bajari. Household delinquency and the ensuing foreclosures are very costly. in which a house is sold for less than the balance of debts secured by the property. as they disrupt the social fabric of neighborhoods and cause lenders to engage in an expensive and drawn-out process of liquidation. Two aspects of this relationship are particularly important—the effect of housing wealth on household consumption and the direct contribution of residential construction to gross domestic product (GDP). see Data Watch 4-1). (For more on data challenges in evaluating the financial situation of homeowners. Negative equity also has the potential to limit underwater borrowers’ ability to pursue employment opportunities in other geographic areas. Moreover. deed-in-lieu. Negative equity also poses a roadblock for efficient reallocation of housing resources. and Shan 2010) shows that a household’s equity position amplifies the effect of unemployment shocks on default and that this interaction grows in strength with the degree of negative equity. Macroeconomic Effects of Housing Market Weakness The housing sector plays an important role in determining the health of the broader economy. 2010).in home improvements and maintenance. Families naturally buy and sell houses over their life cycle and in response to shocks such as illness or divorce. foreclosures not only lower the value of the foreclosed property itself.2 percent. The necessity to write a sizable check to the lender upon sale makes it effectively impossible for liquidity-constrained households to trade their houses without creditimpairing actions such as delinquency. or short sale. Chu. Several recent academic and industry studies have found that the higher their negative equity. Giglio. According f to a recent academic study (Campbell. and Pathak 2011). Negative equity has also been associated with heightened realized default rates. and Park 2010. which leads to the overall decline in the quality of the nation’s housing stock (Melzer 2010). Dokko.1 mile radius of a given house lowers its predicted sale price by 7. each foreclosure within a 0. Stabilizing and Healing the Housing Market | 107 . in which a borrower returns the property to the lender. Elul et al. they also have a sizable spillover effect on valuations of neighboring homes. Recent work by Federal Reserve Board economists (Bhutta. however.

Although this process may seem involved. Third. While many of these costs can be rolled into the loan. it will allow you to take into account refinancing costs as well as the fact that you will be making payments on a refinanced mortgage over a longer period than you will have remaining on the existing mortgage. The NPV calculation can be carried out with a spreadsheet program such as Microsoft Excel or on a number of websites. the one with the lower value is the better choice. say. risk-management charges related to loan origination (for example “points”). However. some have to be paid in cash up front. These costs include those associated with obtaining a new loan. How does a homeowner decide whether it is worth paying the additional costs to reap the benefit of the lower rate? The first step in evaluating refinancing is to get a clear and comprehensive summary of costs associated with a new loan. all future payments are discounted relative to today’s outlays. it is better to have a dollar today than a dollar tomorrow. some common choices include discounting at the risk-free rate (commonly approximated by the 10-year Treasury rate) or the expected rate of return for the stock market (approximated. presenting an opportunity for many homeowners to save money by refinancing their fixed-rate mortgages. Hence. such as title insurance and various administrative fees. these should be provided by your loan officer or mortgage broker on a HUD-1 form. 108 | Chapter 4 . The choice of the discount rate merits a separate discussion that is beyond the scope of this example. The net present value discounts costs paid in the future to reflect the time value of money and the uncertainty associated with future returns. However. This is known as the net present value or NPV. as this dollar can be invested and grow in value by the time tomorrow arrives. refinancing typically involves a number of costs that push the effective interest rate above the rates reported in news media. In the simplest possible form. The second step is to lay out the stream of all payments required under the original loan and the new loan used for refinancing. by the long-term average return on the S&P 500 index). those payment streams need to be converted into one number—the amount of spending today that this stream of payments is worth. Once NPV values are computed for both payment streams. underwriting charges for appraisal of the house.Economics Application Box 4-1: Making a Decision about Refinancing a Mortgage Mortgage rates in the United States reached historic lows in 2011. and the more mundane costs of gathering documentation.

For this family. An example can be found on Jack Guttentag’s Mortgage Professor’s Website at http://www. Some mortgage brokers are fond of making use of simple rules of thumb as a shortcut for using the NPV approach. and how long they plan to stay in the house—the option value determinants—which affect the ultimate recommendation. a family that plans to stay in their house for 10 years. By refinancing today. assuming an upfront fee of 1 percentage point of mortgage value (1 point) and cash closing costs of $2.mtgprofessor.5 percent loan is advantageous from an NPV standpoint.html. one generally forgoes the opportunity to refinance in the future if interest rates were to drop a bit further. Unlike the simple rule of thumb.75 percent loan into a 4.25 percent loan would be even more beneficial.000 mortgage at 6 percent interest rate and has a marginal tax rate of 28 percent. For example.5 percentage points. because it clearly depends on the volatility of interest rates. Take.5 percent loan would not. for example. Sumit Agarwal.com/calculators/Calculator3a. and the ability to maintain access to credit markets-a nontrivial concern for today’s borrowers. interest rate volatility. this calculation takes into account family expectations of the future inflation rate. refinancing is optimal if the interest rate on the new mortgage is 4. One often overlooked cost of refinancing has not yet been mentioned.000. Then refinancing the original loan into a 4.” Recent estimates of such rule-ofthumb threshold differences in interest rates have varied between 1 and 1. John Driscoll and David Laibson (2007) calculated the optimal interest rate differential at which to refinance that explicitly takes into account the aforementioned option value (these calculations can be found at http://zwicke.25 percent is essentially the value of the forgone option to delay refinancing. but refinancing from a 4. Stabilizing and Healing the Housing Market | 109 . the economic outlook. In recent work. they may suggest that “the new mortgage rate has to be 1 percentage point lower to justify refinancing with typical closing costs.5 percent and 4. Suppose you determine that refinancing a 5. has a $250.nber.org/refinance/).6 percent or less.The computation and comparison of net present values is the main idea behind a broad range of online calculators designed to answer the question of whether refinancing makes sense. The value of preserving this option has fluctuated over time. This difference between payments at 4.

Case. Although there is no single agreed-upon value.) Why would households respond more to housing wealth shocks? Part of the likely answer has to do with the very different distributions of ownership of various financial asset classes. Most financial assets other than liquidity-restricted retirement plans are heavily concentrated at the top of the wealth distribution. home ownership stood near a record high at 69 percent. holdings of housing assets are much more uniformly spread across different wealth. and demographic strata. In contrast. In particular. or MPC) is estimated to be roughly between three and five cents. they relate quarterly growth rates in house prices and equity holdings to quarterly growth rates in state-level retail sales and find that the consumption response is more sensitive to changes in housing wealth than to changes in stock market wealth. The severity of losses experienced during the recession that began in December of 2007 in both national output and in labor markets makes these estimates appear too small. translates into a 0. Applying the lower of these estimates to the $7. housing assets make up a much 110 | Chapter 4 .75 percentage point increase in the unemployment rate.5 percent of GDP. At the peak of the housing market in the third quarter of 2006. the consensus range is fairly narrow—the fraction of each additional dollar in wealth consumed in a given year (what economists call the marginal propensity to consume out of wealth. regardless of its source. in turn. Numerous econometric studies have come up with a range of estimates that relate changes in household consumption to changes in wealth (Poterba 2000). income.Consumption Effects The standard approach in economics has been to assume that households consume about the same fraction of the increase in their wealth each year.25 trillion in housing wealth losses to date implies consumption losses of $218 billion a year. One of the possible explanations for this puzzle may be that declines in housing wealth have a more profound effect on consumption than equivalent declines in other forms of wealth. 2011) find strong empirical evidence in support of this hypothesis by exploiting substantial variation across states in house price paths and holdings of equity assets. or 1. Quigley. respectively). Under standard Okun’s law assumptions. and Shiller (2005. Perhaps more important. they vastly exceed ownership rates of all other financial assets other than bank accounts for these two groups. this GDP impact. It is noteworthy that both the level of the response and the difference between sensitivities to financial and housing wealth shocks increase substantially once the recent experience is incorporated in the data (the 2011 study includes data from 2000 through 2010. Although home ownership rates among African American and Hispanic households were noticeably lower (49 percent and 50 percent.

HMDA data are released only annually with a significant lag. A combined database could make available critical statistics on the health of the housing market. providing key information on the overall extent of borrowers’ leverage in different housing markets. but a pilot version developed by a team of researchers at Freddie Mac and the Federal Reserve Board has laid a strong foundation for this effort. but contains little information on loan terms or performance following origination. The HMDA database contains data required to be publicly reported for all mortgages. Stabilizing and Healing the Housing Market | 111 . Reliance on sampling also could reduce operational burden. allowing for more timely reporting. data reported by mortgage servicers. For example. Linking these data sources to produce a more comprehensive database is a challenging undertaking. in turn. have useful information on loan characteristics and performance but underrepresent certain loan and investor types. In contrast. loan amount. but tell us little about loan terms and mortgage contract type and nothing about the employment status and current income of homeowners. Public records contain legal notices of property-related transactions. such as mortgage origination and foreclosure.and second-lien mortgages on the same property. This. such a database could correct for known biases across different data sources.Data Watch 4-1: Need for a Comprehensive Source of Data on Mortgage Debt and Performance There are currently four basic sources of loan-level data on mortgage debt: the Home Mortgage Disclosure Act (HMDA) database. including those collateralized by the same real estate. it could establish a link between first. It is useful for measuring long-term trends in mortgage application volumes and originations. The credit bureau data track borrower credit scores and performance on multiple debt obligations over time. would enable better risk management by first-lien lenders and private investors. but the existing system is inadequate for measuring the extent and ownership of financial obligations backed by residential real estate. and an associated property identifier. In addition. credit bureau data. and public records data. They also have little detail on borrower income or credit scores following origination and lack information on other debt obligations. but they contain little information beyond the reason for creating the record. by utilizing statistical sampling techniques. proprietary data sets from loan servicers. as well as better design and implementation of government and private-sector loss mitigation programs. such as Lender Processing Services (LPS) and CoreLogic. Further. Each of these sources provides insight about mortgage holdings.

and Sufi (2011) shows that households with low levels of nonhousing financial assets experienced much greater declines in consumption for a given decline in home prices. For Hispanics in those five states. These effects were identified in credit card data (Agarwal. These trends matter to consumption because empirical research has pointed out systematic differences in marginal propensities to consume across income groups.000 in 2009. a recent study by Mian. Most of the growth in household debt between 2002 and 2006 can be traced to mortgage-related borrowing. studies that analyzed the consumption effects of the 2001 and 2008 tax rebates using actual household expenditure data found that low-income households and those with low liquid wealth spent considerably higher fractions of these rebates. Parker. Because home equity accounts for a much greater share of household wealth among minorities—59 percent for African Americans and 65 percent for Hispanics in 2005. and only 10 percent for those in the top percentile. Florida. and Souleles 2007). Shocks to housing wealth not only affect more households than other wealth shocks. As underscored by the Pew report. A Pew Research Center report issued in July 2011 provides a stark illustration of these trends. California. which increased by nearly $5 trillion (or 94 percent of the total increase) over this period. As housing values collapsed. concentrating on the disparate effects of the burst housing bubble on the wealth of minority and white households. compared with 44 percent for whites—minority households experienced much greater losses from the housing downturn. 112 | Chapter 4 . more than 40 percent of the nation’s Hispanic households resided in the five states with the steepest price drops—Arizona. it constituted only 25 percent of assets for those in the top decile. with median values collapsing from about $51. For example. and Souleles 2006). they also apply disproportionately to those at the lower end of the wealth distribution. and automobile purchases (Parker et al. 2011). These losses were further compounded by the uneven geographic distribution of house price declines. A growing economics literature highlights the importance of household debt balances in influencing the severity of economic slumps. The fact that housing wealth losses were concentrated among the subset of households most responsive to such shocks may account in part for the magnitude of the observed declines in consumption. Liu. Whereas housing accounted for nearly two-thirds of the overall assets of households in the bottom half of the wealth distribution in 2007. Indeed.000 in 2005 to just $6. Michigan and Nevada—while only about one in five of all white and African American households resided in those states. declining home prices have nearly wiped out household net worth.larger fraction of wealth among lower income households. Rao. the multiple-category Consumer Expenditure Survey (Johnson.

Before the crisis. the ability to use home equity as loan collateral served as an important source of financing for household purchases of goods and services. Dunn. such as automobiles. Moreover. as well as for consumption of groceries. Rao. Household efforts to bring their balance sheets closer to equilibrium leverage can potentially proceed along several avenues.many households found their balance sheets tilting heavily toward debt. suggesting that the run-up in debt and bursting of the housing bubble have caused the contraction in aggregate demand. these approaches are often referred to as deleveraging. Or they can repair their asset base through more aggressive saving. These trends in consumption in turn affect local employment. which would further affect their consumption (Hall 2010). and debt paybacks by non-defaulters are much higher in high-debt counties than in low-debt ones. Figure 4-5 illustrates the divergence in employment trends in such nontradable industry sectors for high. Aside from the consumption effects of debt reduction or increases in savings needed to deleverage.and low-debt counties. The studies compared the consumption response in counties with different pre-recession levels of household debt and found that counties with the highest debt levels experienced much larger and longer-lasting drops in consumption than counties with low debt levels. the traded goods sectors (not shown) display no such divergence. such as restaurants and retail establishments (Mian and Sufi 2011). Another example of the pernicious effects of over-leveraging on access to credit. This finding held true for consumer durables. For example. Collectively. households with impaired balance sheets may also have difficulty obtaining credit. as increases in the numbers of defaults. These counties also exhibit patterns consistent with deleveraging. Doms. particularly in sectors that produce locally consumed goods and services. In contrast. and furniture. Stabilizing and Healing the Housing Market | 113 . appliances. A series of empirical papers attempts to quantify the effect of such deleveraging on consumption (Mian and Sufi 2010. Households can default on their debt obligations. These papers broadly suggest that the levered nature of household housing assets amplified the effect of pure wealth losses from the crash in housing prices. They can accelerate repayment of their debts. and Vine (2008) find that the increasing ease of tapping home equity credit in the early 2000s allowed homeowners to use their housing wealth to finance various forms of consumption. is the inability of homeowners with low or negative equity stakes to refinance into low-interest mortgages. and Sufi 2011). Mian. discussed earlier. reductions in the collateral value of houses have a negative effect on the economic recovery by restricting one of the primary channels for financing startup businesses.

91 2005 2006 2007 2008 2009 2010       Source:  Quarterly  Census  of  Employment  and  Wages.93 0.99 High  household     debt  counties   0. Housing starts of both single.01 0. Rather. albeit stable. levels. In addition to cyclical headwinds.and multi-family structures remain far below their peak 2006 levels of 2 million units.95 0. and tight financing conditions for homebuilders. residential construction in 2011 remained at very subdued. especially if the home is repossessed at the 114 | Chapter 4 .05 Low  household     debt  counties   1.Figure  4-­5   Employment  Growth:  Nontradable  Industries   Indexed:  2007  =  1   1. Recent research by Federal Reserve economists analyzes the moving decisions of homeowners who went through foreclosure between 1999 and 2010 (Molloy and Shan 2011). the slow pace of household formation.03 1. This evidence suggests that many of the newly foreclosed households will continue to exhibit strong preference for single-family structures. However. the overwhelming majority of them (76 percent) end up renting single-family housing units. Starts of new housing units averaged a little over 600.000. weighed down by the cyclical weakness in demand. as a growing number of households exited the ranks of homeowners through foreclosures. roughly in line with the levels observed in 2009 and 2010. the conversion of an owner-occupied house to a rental property takes a certain amount of time. residential construction has been impeded by the need to reallocate the nation’s housing stock from owneroccupied to rental units.;  Mian  and  Sufi  (2011). This study finds that post-foreclosure households do not tend to move in with others to defray their living expenses.97 0.       Residential Construction and Home Ownership Patterns As discussed in Chapter 2. high inventories of vacant properties for sale.

often rehabilitated. Consequently.000 new households in both 2009 and 2010. Successful mortgage applicants have substantially higher average credit scores and are required to put up larger down payments than was the case in the era of rapidly rising house prices. deriving both from high unemployment rates among the young and from a substantial drop-off in immigration. loans through the FHA and the U. with the FHA accounting for nearly 40 percent of all house purchase loans in 2010. and then marketed to potential renters. In the meantime. credit conditions have tightened considerably in recent years. only avenues for mortgage financing—providing a vital counter-cyclical buffer to sustain access to credit through the crisis.conclusion of the foreclosure process. the share of FHA/VA loans has skyrocketed from Stabilizing and Healing the Housing Market | 115 . creating an ongoing need to convert existing homes to rental.S. household formation slowed dramatically during the 2007–09 recession and has only recently begun to grow. as economic conditions improved. The primary part of this trend is cyclical. individuals who delayed forming households during recession years were more likely to turn to rental markets to fulfill their housing needs. First. Among minority households. household formation is poised to accelerate. Second. well below the 2002–07 annual average of 1. Repossessed homes need to be sold. the FHA and VA loans became the predominant form of financing for home purchase.3 million. prices in rental markets have been trending upward. This process is made all the more difficult by tight credit conditions for financing investment properties. A 2010 study done for the Mortgage Bankers Association (Painter 2010) suggests that historically. in particular. For potential homebuyers who are unable to put down 20 percent of the purchase price. Data from the Census Bureau show formation of fewer than 400. in many cases. Departments of Veterans Affairs (VA) and Agriculture have become the primary and.) Demand for rental housing is likely to grow at a healthy rate over the next few years. A well-functioning mechanism for disposition and conversion of distressed properties into rental units has the potential to ease the downward pressure on owner-occupied house prices by removing a part of bank-owned and shadow inventory of soon-to-be-foreclosed properties from the sales market. (See the Data Watch 4-2 for discussion of challenges in measuring home sales. As numerous observers have pointed out. the agencies’ market share has risen rapidly. Between 2005 and 2010. evidenced by historically high shares of all-cash purchases and by execution problems in amassing property portfolios necessary to realize any economies of scale through multiple foreclosure auctions. pointing to the critical importance of efficient conversion of foreclosed properties and providing some of the necessary impetus for this process.

lower sales levels caused a reevaluation of housing market conditions. Such data. by causing realtor commissions to be revised downward.Data Watch 4-2: Need for a Comprehensive Source of Data on Home Sales On December 21. As NAR adjustments lagged consolidation of MLS systems. reported sales were being grossed up by outdated factors and thus were systematically overstated. These sales channels vary in importance over the housing cycle and across different geographies. Since all property sales are publicly documented by local deed registration systems. Historically. and. The NAR sales estimates are based on reports from a subset of regional Multiple Listing Services (MLS). and with minimal time delay. something that can be difficult to capture accurately on a current basis. the NAR cannot directly measure sales transactions conducted outside of Multiple Listing Services platforms. many metropolitan regions were represented by several MLS databases. The data from the covered areas must be weighted to represent the areas that are not covered and adjustments must be made to this weighting over time. would represent a reliable and timely source of information on sales activity—useful information for macroeconomic forecasters and an important gauge of health in the nation’s housing markets. Although the implied pace of change in recent home sales was largely unaffected. 116 | Chapter 4 . and some foreclosure sales. revisions to the NAR data are inevitable. Further. 2011. and reduced the number of reported home sales between 2007 and 2010 by nearly 3 million units. NAR revisions also reflect the fragmented nature of local MLS systems and their evolution over time. To a certain extent. These “unlisted” transactions may include houses sold by owners without realtor assistance. it theoretically should be feasible to use these records to estimate sales volumes across all jurisdictions and all channels.25 million units. MLS systems have undergone considerable recent consolidation. the National Association of Realtors (NAR) announced substantial downward revisions going back to 2007 of previously reported data on sales of existing homes. The main hurdle to constructing a comprehensive national data source for real estate transactions will be to integrate data across disjointed and dissimilar county-level recording systems. The NAR obtained actual sales data from a subset of these databases and adjusted the numbers to account for sales recorded in the remainder. however. The revisions reduced the estimated home sale projection for 2011 from nearly 5 million units to 4. sales carried out by builders. are expected to lower the level of GDP.

In sum. Third. On the other hand. Recent research (Malmendier and Nagel 2011) showed that households coming of age during periods of sizable declines in the equity market stayed away from equity ownership in the future. It is premature to say whether a similar “Depression babies” effect is applicable to today’s young renters. a series of special supplements to the Michigan Survey of Consumer Sentiment suggest that younger households hold more pessimistic views of homeownership. Understanding and addressing these institutional frictions represents a necessary step in formulating appropriate policy actions. For such households. These challenges are compounded by several structural problems in housing markets that have been exposed by the crisis. although this result is limited to a subset of responders with personal knowledge of someone who experienced foreclosure or substantial home price declines (Bracha and Jamison 2011).15 percent to 80 percent of all purchase mortgages originated to AfricanAmerican households and from 8 percent to 75 percent of all purchase mortgages originated to Hispanic households. liquidating Stabilizing and Healing the Housing Market | 117 . a longer lifetime perspective could not offset the dramatic price declines experienced early in life. High unresolved inventories of distressed properties. at least 60 percent of all first-time home buyers financed their purchases with FHA or VA loans. During the past three years. younger households that just experienced a historic decline in housing prices may be less optimistic about homeownership. Structural Problems in Housing Market The shock to the housing market laid bare serious deficiencies in the existing infrastructure for servicing delinquent mortgage loans. have an outsized effect on consumption. The scant survey evidence available on this question is mixed. along with the substantial weakening of household balance sheets burdened by debt overhang. contribute to ongoing difficulties in the residential construction sector. The enormity of losses in housing wealth and the uneven distribution of those losses in the population. On one hand. Young households surveyed by Fannie Mae repeatedly cite an insufficiently strong “credit history” and “not having enough for a down payment” as two of the biggest obstacles to homeownership. along with a concurrent need for large-scale rebalancing of the housing stock. which thus tended to have a strong and long-lasting influence on subsequent economic behavior. the Fannie Mae surveys indicate that the majority of young households continue to regard housing as a good financial investment and homeownership as a desirable goal. the weakness in the housing sector continues to weigh heavily on macroeconomic performance.

and quality control standards became more difficult to enforce. The resulting legal uncertainty has the potential to impede origination of new mortgage credit if it unnecessarily adds to lender liability vis-à-vis mortgage investors. For example. the transmission of this liability by each party along the chain became less well understood. available assets. especially in urban and minority-dominated neighborhoods that have been historically underserved by traditional lenders. A similar audit may be conducted in the event of mortgage default. when the discovery of R&W violations on defaulted loans would also result in the investor “putting back” the loan to the originator.foreclosed properties. many financial institutions increasingly relied on independent mortgage brokers to carry out customer prospecting and loan underwriting. If the Trustee finds R&W violations on a particular loan. In effect. and the appraised value of the house. Within a specified period of time following securitization. During the standard loan origination process an underwriter provides legally binding representations and warranties (R&W) backing the veracity of collected information. would securitize the resulting loan portfolio in broader capital markets. Because mortgage brokers did not have sufficient capital to originate and hold a substantial number of loans.” 118 | Chapter 4 . mortgage brokers functioned as independent contractors for banks that would eventually securitize these loans. which. As the number of intermediaries between the underwriter and loan investor grew. These deficiencies have impaired the effectiveness of loss mitigation efforts and may also be affecting borrowers’ ability to access mortgage credit. the originator is obligated to buy back that loan from the securitized pool. and adjudicating legal disputes between various parties. “originate-to-distribute. an agent of the investors (the Trustee) conducts a postsale audit of loan documentation.” this business model was labeled as “outsource-to-originate-to-distribute. These put-back rights create a liability for originators that is designed to serve an important quality control function: the originator must bear the risk of loss on defaulted loans with R&W violations. they quickly sold their mortgages to a larger financial institution. Representations and warranties encompass such crucial elements of the loan application as borrower income. Adjudicating Legal Disputes Rapid growth in the volume and complexity of securitized mortgage credit during the bubble years outpaced developments in case law adjudicating legal liability for representations and warranties associated with loan underwriting. in turn. In a twist on a common description of mortgage securitization.

transmit those payments to various investor classes. as well as the risk that they might not be able to pass faulty loans back to the originating mortgage brokers. there is empirical evidence that at least some banks actively securitized loans originated by mortgage brokers with little or no documentation—the so-called “liar” loans that can be easily falsified (Jiang. These loans were held on lenders’ own balance sheets and were typically serviced by them as well. Investors in mortgage-backed securities relied on third-party servicers to collect monthly payments. established financial institutions that securitized loans had ample incentives to exercise due diligence. particularly for mortgage pools with multiple investor classes or tranches. which poses a challenge to stabilizing the housing market and accelerating a recovery. junior investors that are second in line (or lower) to receive flows generated by mortgage pools have an incentive to legally challenge modification actions that curtail overall cash flows. and mitigate losses on nonperforming mortgages. and Vytlacil 2011). some litigation was necessary to clarify this principle. They retained liability for representations and warranties. bank-funded (or portfolio) mortgages became less prevalent. ceding ground to GSE and private-label securitizations (PLS).In theory. These relationships are generally governed by “pooling and servicing agreements” (PSAs) that specify permissible actions servicers may take in dealing with delinquent loans. In particular. and carried reputational risk. while that held by the PLS investors nearly quadrupled to 19 percent over the same time period. As a result. The complexity of the claims. The separation of mortgage ownership and servicing gave rise to a number of incentive conflicts between loan investors and their servicers. and the sheer number of lawsuits that are being litigated on a loan-by-loan basis. Incentive Conflicts Before securitization became prevalent. The resulting Stabilizing and Healing the Housing Market | 119 . the share of aggregate residential mortgage debt held on portfolio had fallen to 37 percent from 48 percent in 1992. Nelson. suggest that court resolution will take considerable time. which made problem mortgages more difficult to address. Even now that the principle has been established. Although the overriding PSA principle is maximization of the value of the loan pool. Securitization of mortgage credit either through GSEs or private label issuers allowed the expansion of funding to broader capital markets. Yet. By 2007. it can be interpreted in several different ways. the majority of mortgages was funded directly by banks and other deposit-taking financial institutions. The lengthening of the chain of financial intermediaries made the evaluation and assignment of liability for faulty underwriting processes considerably more complicated.

Over the past three years. These incentive conflicts. the program reduced the exposure of servicers performing such modifications to investor lawsuits. some observers have argued that servicers tailor their loss mitigation practices to minimize the risk of litigation by their investors. their incentives are skewed toward modification practices that favor reductions in interest rates and adding unpaid loan balances (or arrears) to the principal. effectively limited early modification efforts on securitized mortgages to three alternatives: adding arrears to principal and either lowering the interest rate or freezing it on adjustable-rate mortgages (Agarwal et al. As servicers built up their distressed loan infrastructure to accommodate HAMP.internecine “tranche warfare” discourages servicer actions. and to help communities rebuild after experiencing a wave of foreclosures and erosion in property values. Indeed. 2011). The Administration is pursuing additional innovative approaches designed to help households refinance their mortgages and maintain access to credit. coupled with the absence of established legal precedent. building on the experience of the early responses to the crisis. servicers may have an incentive to pursue foreclosures as the least legally contentious option. 120 | Chapter 4 . they also switched their own modification focus to more aggressive methods that emphasize loan affordability. The unveiling of the Home Affordable Modification Program in early 2009 substantially changed the playing field for loan modifications. Because loan modification is an expensive and uncertain undertaking. to avoid unnecessary and costly foreclosures. because servicer compensation is based on the unpaid principal balance of performing loans. Seru. Moreover. the Administration’s housing policy has continued to expand to fit the circumstances. Policy Actions Both the complexity of the existing challenges in the housing market and the importance to the broader economy of resolving these challenges call for a robust and multifaceted menu of policy actions. Indeed. 2011). By establishing a standardized approach to modifying mortgage contracts that explicitly maximized the return to investors as a group. even when that is not the most effective approach to ensuring long-term performance of the loan. to stabilize housing prices. and Vig 2010. The HAMP standards have served as a catalyst for spurring rapid growth in mortgage modification efforts across the industry. recent research found evidence of considerably lower likelihood of modifications for privately securitized mortgages than for portfolio-held loans where no conflicts of interest are present (Piskorski. Agarwal et al.

thereby encouraging greater lender participation. HAMP provides monetary incentives for investors to write down principal. In particular. the PRA seeks to lessen the risk of moral hazard by implementing principal write-down in three annual installments and making it conditional on continuous performance of the Stabilizing and Healing the Housing Market | 121 . The PRA requires servicers of non-GSE loans to evaluate the benefit of principal reduction for loans that exceed the appraised value of the house by 15 percent or more (that is. the Principal Reduction Alternative (PRA). major lenders have committed to dedicate additional origination capacity and resources to refinancing HARP borrowers. The revised HARP also addresses some of the difficult institutional hurdles. Consequently. To encourage servicers to use the PRA. At the same time. These modifications also seek to overcome a set of institutional hurdles that have thus far limited the effectiveness of certain policy actions. announced in October 2010. the Administration worked with the Federal Housing Finance Agency and private market participants to improve HARP—the existing refinancing program for borrowers with insufficient or negative equity in their homes whose mortgages are guaranteed by Fannie Mae or Freddie Mac. such as coordination problems with second-lien holders and mortgage insurers. In particular. The changes also lower some of the representation and warranty requirements for existing loan servicers.Building on the Experience of Existing Programs A number of program modifications are focused on counteracting the corrosive effects of negative equity. augments the original HAMP focus on affordability with elimination of a portion of the mortgage balance. The program also lowers refinancing costs by reducing unnecessary pricing overlays and negotiating favorable pricing on some of the major closing cost items. The revised program guidelines announced in November 2011 expand the pool of eligible borrowers by removing limits on loan-to-value ratios and extending the program deadline until December 2013. Whereas changes in HARP were aimed at dulling the adverse effects of negative equity on the ability of currently performing borrowers to refinance their loans. modifications of delinquent loans with high loan-to-value (LTV) ratios may be more effective if they include a principal reduction component. In a bid to further increase use of HARP. such as title insurance. other HAMP initiatives tackled the issues posed by negative equity in modifying loans of delinquent borrowers. The PRA builds on the insight that high levels of negative equity contribute to mortgage default over and above the effects of loan affordability. the revised program allows servicers to solicit some potentially eligible borrowers directly. Furthermore. have LTV ratios above 115 percent) in making their HAMP determinations.

modifications. These reductions are typically earned over time to encourage borrowers to maintain loan performance. One of the reasons many borrowers have not been able to take advantage of the program is that eligibility was tied to first-lien mortgages. which enhances the net present value of the PRA modifications to investors. The Administration has also expanded housing assistance for unemployed or underemployed homeowners. Under this earned principal reduction structure. nonHAMP. Several servicers have shifted their focus to principal reduction for deeply underwater delinquent loans held in securitization trusts. shared appreciation effectively raises the borrower’s costs of defaulting to qualify for principal forgiveness. Another HAMP-related initiative recently announced by the Department of the Treasury expands the reach of the program by broadening eligibility. more than 36. a borrower has a strong incentive to remain current. By expanding eligibility. but relatively average mortgage burdens. Similar acceptance is echoed in servicer actions on private. with more than one in four HAMP modifications receiving principal reductions. The Treasury also offered to extend PRA incentives to Fannie Mae. To help out-of-work homeowners avoid foreclosure.modified mortgage.and Freddie Mac-insured loans. The median amount of principal forgiveness for active permanent PRA modifications was about $66. According to the latest Treasury report.000. the borrower shares a part of the appreciation with the lender. The median PRA loan had an LTV ratio of 158 percent before modification and a target ratio after modification of 115 percent. the Treasury has recently announced a tripling of the PRA monetary incentives. for example. the changes aim to extend loan modifications to such borrowers and lower the number of preventable foreclosures. Because servicers are not required to offer principal reduction and usually may do so only when permitted by the loan investor. Some borrowers with high medical debts. If the market value of the house in a future sale or refinancing exceeds its value at the time of principal reduction. the growing use of the program suggests increasing acceptance of principal reduction as an effective loss mitigation tool by private investors. these programs generally provide for a period of 122 | Chapter 4 .000 permanent modifications that include principal reduction had been implemented by the end of November 2011 (Department of the Treasury 2011). To further encourage investors to evaluate the use of principal reduction in modifying problem loans. The pace of PRA modifications has picked up appreciably in the past few months. Principal reductions are also often coupled with a shared appreciation component that exchanges forgiven principal for an equity stake in the property. Much like the earned principal reduction. did not previously qualify for the program.

in June of 2011 HUD launched the Emergency Homeowners Loan Program (EHLP) which provided $1 billion in interestfree loans to help keep borrowers in non-HHF states who are unemployed. In addition to helping unemployed borrowers. and the balance on these loans is forgiven in 20 percent increments for each year the borrower remains current on regular mortgage payments. Following the Administration’s lead. and social fabric. HHF programs commonly include efforts to fund innovative approaches to modification of delinquent mortgages and to allow homeowners to transition into more affordable places of residence. economic prospects. While the revised HARP and the HAMP PRA focus on negative equity. The Administration’s Project Rebuild. The EHLP is available to borrowers with a long track record of staying current on their mortgages but who find their ability to continue doing so compromised by job loss or illness. the FHA and the Treasury announced the extension of forbearance to 12 months.forbearance of all or part of the monthly mortgage payment. HHF currently provides assistance to homeowners in 18 states and the District of Columbia. from losing their homes. This change applies to mortgage servicers that participate in the HAMP’s unemployment initiative program (HAMP UP). It also extends rehabilitation efforts to Stabilizing and Healing the Housing Market | 123 . The specific programs are designed by state housing finance agencies and take into account local market conditions. as the length of unemployment spells continued to exceed forbearance periods for many of the unemployed homeowners. as well as to the FHA Special Forbearance program. In particular. In July of 2011. Furthermore. Mortgage payment assistance for unemployed or underemployed homeowners has become a prominent feature of state level programs developed under the Hardest Hit Fund (HHF). or who suffer from a severe medical condition. is another example of building on the experience of existing housing programs. EHLP loans are secured by a junior lien note on the homeowner’s principal residence. The President announced the establishment of the Fund in February 2010 to provide targeted aid to families in states that have been hit hard by the economic and housing market downturn. introduced as part of the American Jobs Act in September 2011. Project Rebuild addresses the damaging effects of foreclosed or abandoned homes on neighborhood property values. it explicitly allows federal funding to support for-profit development subject to HUD oversight. two major lenders and the GSEs have recently announced their commitment to provide up to 12 months of mortgage payment forbearance to unemployed borrowers. Project Rebuild seeks to integrate and expand strategies proven successful under the Neighborhood Stabilization Program to deal with vacant and foreclosed properties.

for example) mortgage and commit to deploying the savings from refinancing 124 | Chapter 4 . the HARP program is available only to homeowners whose loans are owned or guaranteed by the GSEs. These changes are aimed at streamlining the operational requirements of the HARP program and making it more accessible to a greater number of borrowers. Under this option. the proposed changes also seek to harness competitive forces to bring more interest savings to borrowers. By leveling the playing field between existing and new servicers. market—events largely outside of a borrower’s control. Project Rebuild further calls for expanding support for land banks that work at the local level to acquire. the Administration proposes that the FHA be authorized to offer streamlined refinancing to non-GSE borrowers with standard mortgage contracts. while enhancements to HARP announced in November of 2011 will increase the reach of the program. more can be done to reduce the barriers to refinancing of GSE-backed loans. To remove this arbitrary distinction. and removing remaining differences in HARP requirements that still exist between Fannie Mae and Freddie Mac. further reducing loan fees because GSEs do not acquire any new credit risk by refinancing these loans. Such steps would include harmonizing underwriting requirements for mortgages with LTV ratios below and above 80 percent. the Administration’s proposal helps address the problem of negative equity by providing a pathway for responsible homeowners who refinance their mortgages to rebuild their equity more quickly. as opposed to the GSE. hold. The Administration has called on Congress to pass legislation that will enable more homeowners to refinance their mortgages at today’s historically low interest rates. Federal funds granted under the project would provide land banks with capital infusions that can be leveraged with private-sector investments to finance long-term redevelopment strategies. New Levers in Housing Policy Refinancing. home owners would refinance into a shorter-maturity (20-year. To limit risks to the taxpayers. fully aligning the treatment of representations and warranties for refinancing with the existing or new mortgage servicers. Second. This restriction has left some borrowers unable to refinance their loans only because their mortgages were kept on the originating bank’s books or were securitized in the private.commercial as well as residential properties. Third. and redevelop distressed properties. Another risk-management component of the proposal includes capping the loan-to-value ratio of eligible loans. First. the proposal emulates HARP in requiring eligible borrowers to have remained current on their mortgages and to meet certain underwriting standards.

This borrower could lower the monthly payment by $166 by refinancing into a 20-year mortgage at 3. servicers may schedule a foreclosure sale only after they have certified in writing that all loss mitigation alternatives have been considered. These principles include full disclosure of all fees provided in understandable language upfront. To ensure compliance. for the servicing industry. Under the proposal.000. Stabilizing and Healing the Housing Market | 125 . Should the borrower choose to keep their mortgage payment at its original level and direct the $166 in savings to principal reduction. Congress.000 (a loan-to-value ratio of 125). To minimize inappropriate foreclosure actions. To assist borrowers who make this choice.5 percent mortgage originated in 2006 with an outstanding balance of $200. The Homeowner Bill of Rights is meant to provide an enforceable set of rules. whose house is worth $160. The Administration will work closely with the Consumer Financial Protection Bureau (CFPB) and other independent regulators. not just guidance. underwater borrowers would have the choice of pursuing this pathway to rebuild their home equity. and the overall housing market. servicers are required to contact homeowners who have demonstrated hardship or fallen delinquent. To make loss mitigation actions more timely and effective. To improve accountability and align incentives in the mortgage servicing industry. Servicers must further allow homeowners the right to appeal denials for mortgage modification to an independent third party and provide homeowners who find themselves in economic distress with access to a customer service employee with a complete record of previous communications with that homeowner. the proposal directs the GSEs and the FHA to cover the closing costs of their refinanced loans. with any changes disclosed before they go into effect. the outstanding mortgage balance would decline to $152.75 percent. investors. such as those that exist between multiple investor classes and those that arise when the servicer simultaneously owns a secondary lien on the property. and provide them with a comprehensive set of options to avoid foreclosure. servicers must maintain strong controls over servicing and loss mitigation operations and subject these controls to periodic independent audits.000 in five years. The experience of the past few years showed that the Nation is not well served by the patchwork of rules that govern the mortgage servicing system. the Administration recently released a unified framework of servicing standards—the Homeowner Bill of Rights— that is designed to better serve borrowers.to rebuilding equity in their homes. As an example. and other stakeholders to create a more robust and comprehensive set of rules driven by a set of core principles outlined in the framework. The framework also requires servicers to implement standards and practices that minimize conflicts of interest. consider a borrower who has a 6. Servicing standards.

and minimum reinvestment requirements impose certain quality standards for rented properties. and predictable mechanism for converting these properties to better suit local housing demands. with the Departments of Treasury and Housing and Urban Development. Although housing markets are stabilizing 126 | Chapter 4 . Conclusion Developments in the housing market played a central role in the financial crisis and the ensuing recession. the process is intended to help the industry develop a viable framework for acquiring and managing large-scale scattered-site rental portfolios. Qualified bidders must demonstrate evidence of property management experience and adequate capital resources. as well as agree to abide by property usage restrictions. Freddie Mac and the FHA. and they continue to present a headwind for the economic recovery. initiated a process to manage the sale of REO properties held by Fannie Mae. this framework may well help establish industry standards. fair process for disposition of foreclosed properties remains a key objective of housing policy. An orderly. a process that typically involves rehabilitation. In many ways. Bulk purchases will make it easier for investors to achieve economies of scale as they implement their individual business strategies. antiflipping provisions establish minimum time periods that an investor must hold the property before seeking to sell it. Tight credit conditions for financing investment properties have further limited the ability of private investors to fill the gap in demand. Given the ongoing reduction in rates of homeownership. transparent. many foreclosed properties will have to be converted to rental units. Similar to the HAMP experience. allowing for customization at the local level.Conversion of Repossessed Properties into Rental Units. For instance. It looks to avoid rigid top-down solutions. the REO-to-rental conversion program seeks to build on the best practices established by successful policy interventions during the crisis. The goal of this effort is to allow private investors to bid on acquiring pools of REO properties in exchange for a commitment to rehabilitate and manage the properties as rental units. To counteract these problems. Furthermore. The program focuses on leveraging the expertise and financial resources of private investors. the FHFA. And it makes use of the unique position of the GSEs and FHA as owners of large nationwide inventories of distressed properties to provide a large-scale. The demand for this type of housing stock will come mainly from private investors whose activity to date has been hampered by execution problems in putting together property portfolios through a series of small-scale acquisitions. while preserving value for the taxpayers.

The new policy initiatives seek to enable refinancing. to implement sustainable modifications of delinquent loans. and to repair the frayed infrastructure of mortgage servicing and mortgage finance. This is a reflection of both the magnitude of the recent housing price collapse and the many institutional obstacles on the path to a new equilibrium. Stabilizing and Healing the Housing Market | 127 .in many regions. the Administration has embarked on a series of multifaceted and fiscally responsible actions in partnership with private market participants and housing regulators to proactively repair the housing market and ease the transition to a new and stable equilibrium. to prevent unnecessary foreclosures for borrowers struggling with temporary loss of income. Getting to the end of this path will require unwinding accumulated inventories of foreclosed homes. the healing process will inevitably take time. whether by finding new owners or by converting them to rental units. It will require enabling more homeowners to refinance their mortgages at today’s low interest rates. It will require resolving multiple conflicts of interest in the modification of delinquent loans and providing meaningful assistance to unemployed homeowners as they search for new jobs that would allow them to remain in their homes. It will require restoring access to credit for responsible borrowers and repairing household balance sheets hard hit by erosion of home equity. Instead of waiting for these processes to play themselves out slowly and painfully. And it will require working out legal uncertainties and fixing up mortgage finance markets. to unlock access to credit for responsible underwater homeowners. to reallocate foreclosed properties to the rental market.

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were disrupted by production slowdowns and parts shortages. Slow growth has exacerbated sovereign debt and deficit problems in Europe.9 percent in 2010. especially in the automotive industry. and is estimated by the IMF to have been only 0. those elsewhere in the developed world were largely a product of forces outside of nature.9 percent in 2011. One could hardly begin with a starker example of an adverse shock to the world economy than the massive earthquake that struck Japan’s northeastern coast on March 11. The International Monetary Fund (IMF) estimates that the Japanese economy contracted by 0. slower growth 129 . and predicted that the euro area would contract by 0.000 lives. and the United States collectively accounting for almost 60 percent of global GDP. Alongside the devastating human toll.9 percent in 2011. in an integrated global economy. the United States cannot fully escape their impact. global economic growth has slowed. unrelated to policies or business decisions undertaken within the borders of the United States. supply chains around the world. and austerity measures put into place in response have impeded near-term growth in a number of euro-area countries. These adverse shocks are. Nevertheless.5 percent in 2012. While Japan’s severe economic slowdown in 2011 was driven by a natural disaster. With the European Union. triggering tsunami waves that leveled towns and claimed nearly 16. the disaster also had a major impact on the Japanese economy. The economic impact also extended far beyond Japan’s borders. down from 1. in part reflecting tight fiscal policies. For months afterward.C H A P T E R 5 INTERNATIONAL TRADE AND FINANCE O ver the past year.6 percent in 2011. largely due to a range of challenges in the advanced economies. Japan. for the most part. the IMF reported that the euro area’s gross domestic product (GDP) grew 1. Growth in the United Kingdom has also slowed significantly. In January. This earthquake was the most powerful to have hit Japan in recorded history.

Brazil. Luxembourg.1 Slower growth in import demand in the large economies meant slower export growth in emerging markets. South Korea. Ireland. Although the IMF predicts China is likely to grow more than 8 percent in 2012.2 For example.    and  Japan   2011:Q3   -­6 -­8 -­10 2002:Q1 2004:Q1 2006:Q1 2008:Q1 2010:Q1 Note:  Weights  come  from  each  nation’s  share  of  GDP  within  each  aggregate. Malta. growth in emerging markets also decelerated. 1 The growth slowdown in some emerging markets also reflected the impact of policy tightening in some countries to prevent overheating. They are Austria.Figure  5-­1   Real  GDP  Growth. Italy.     European  Union. Seventeen member states of the European Union (the EU-27) use the euro. Indonesia.   in these economies was sufficient to lower growth at the global level in 2011. Peru. France. Chile. Netherlands. Finland. Greece. China. as Figure 5-1 illustrates. Germany. and Spain. Cyprus. Belgium.   Source:  Country  sources. Mexico. Estonia. concerns about overheating tended to give way to concerns about the economic slowdown in the developed countries. Malaysia. Portugal. Turkey.  World  Economic  Outlook. India. Thailand. Israel. its slowdown contributes to the loss of momentum in global growth.;  International  Monetary  Fund. and Venezuela. growth in China is decelerating because of a decline in export growth as well as a slowdown in domestic real estate investment. Singapore. Ukraine. Slovenia. Russia. 2 The emerging markets aggregate in Figure 5-1 includes Argentina. As the year progressed. South Africa. 130 | Chapter 5 .   September  2011. Taiwan. Hong Kong.  2000–2011   Annualized  quarterly  percent  change   12 Emerging   10  markets   8 6 4 2 0 -­2 -­4 United  States. In the face of the broad-based slowdown in economic growth in the developed economies.;  CEA  calculations. the Slovak Republic. Colombia.

Global economic events could also affect the U.S. relied on unsustainable growth in household consumption and construction of residential real estate. including Germany.Viewed in the context of these external challenges.S. Japan.S.S. For progress to continue. the United States has made significant progress toward rebalancing.-owned assets abroad and foreign-owned assets in the United States increased more than six-fold between 1994 and 2010. exports over the past year has been a particular bright spot. and China. countries that have traditionally run large current account surpluses need to rely more on domestic consumption and less heavily on net exports. better balanced pattern of growth is needed throughout the major economies. “Global rebalancing” has been a major theme of U. In the United States.S. the growth of U. including continued productivity growth in manufacturing. U. Conversely. The Euro-Area Crisis and Its Implications for the United States A key potential risk in 2012 to the U. Many factors are contributing to this fast pace of growth. Economic and fiscal conditions vary greatly among the 17 economies in the euro area. and consumption in the surplus countries must increase. A more symmetric. U. exports must grow even more. relied too heavily on unsustainable growth in net exports to drive economic growth. a shift in unit labor costs that favors U. businesses over those in other advanced countries. Despite a slowing global economy. which is improving America’s trade balance in petroleum products. In the years before the global financial crisis erupted in 2008. future growth must be driven less by consumption and more by net exports and investment. Several countries characterized by large. America’s exports of goods and services have surpassed their pre-crisis peaks and have been growing more than fast enough to meet the President’s goal of doubling the 2009 export level by the end of 2014. Several other countries characterized by large.S. So far. persistent current account deficits. and global economic recoveries remains the sovereign-debt and banking crises in Europe. and technological innovation in the energy sector. as illustrated in Figure 5-2. however. however. A possible further weakening of foreign demand conditions. persistent current account surpluses. economy through financial links between the United States and the rest of the world. including the United States. export growth. These links have increased dramatically in recent decades. Although there is significant heterogeneity among International Trade and Finance | 131 .S.S. international economic policy since the beginning of the Obama Administration. could pose a risk to future U. large asymmetries had developed in the global economy.

  Source:  International  Monetary  Fund.     132 | Chapter 5 200 .  World  Economic  Outlook.  World  Economic  Outlook.     10 b.  September  2011.  Public  Debt–GDP  Ratio  (Percent)   Estonia Slovak  Republic Finland Netherlands 2000–2007  average   2012  projection Spain Austria Germany France Belgium Portugal Ireland Italy Greece 0 50 100 150 Source:  International  Monetary  Fund.  September  2011.Figure 5-2 Economic and Fiscal Indicators for Selected Euro-Area Countries a.  GDP  Growth  (Percent)   Greece Italy 2000–2007  average   2012  projection Portugal Spain France Germany Netherlands Ireland Belgium Austria Finland Slovak  Republic Estonia -­4 -­2 0 2 4 6 8 Note:  Projections  include  revisions  as  of  January  2012.

the third. exacerbating their fiscal situation. In December 2011. and Portugal. resuming its Securities Markets Program. (See Financial Stability Oversight Council 2011 for a discussion of the interconnections between U. such as the European Financial Stability Facility. the European Central Bank (ECB) intervened. and Spain are predicted to shrink by more than 1.5 percent. Finland. and European government debt. the Slovak Republic. including individual factors (Berg and Sachs 1988) and global financial factors (Eichengreen and Mody 2000.3 In response to the marked increase in sovereign borrowing costs.S. in part because of fears that economic growth in these countries is likely to be sluggish for a prolonged period. Market participants are expressing ongoing concerns about the fiscal conditions of Italy and Spain. many European banks were facing shortened maturities and higher costs of funding in the interbank market. the Netherlands. and the Slovak Republic are predicted to grow by more than 2 percent. In 2012. Among 3 Assistance programs for Greece negotiated in 2011 have not yet been implemented. as well as Greece and Portugal. banks. European banks are among the largest holders of European government debt. the ratio of general government gross debt to GDP is projected to be roughly 70 percent or below in Estonia. The European Commission (EC) and the IMF negotiated assistance programs for Ireland (November 2010). Finland.euro-area economies.and fourth-largest economies in the euro area. In October 2011. and Spain and above 110 percent in Greece. spreads widened on sovereign bond yields relative to German bond yields in June 2011 (as highlighted in Figure 5-3). Portugal (May 2011). European leaders and institutions have also introduced and expanded various measures to inhibit contagion. European banks. economic and fiscal conditions in most of them deteriorated throughout 2011. International Trade and Finance | 133 . the ECB took major steps to provide increased liquidity to euro-area banks. in an effort designed to lower sovereign bond yields by purchasing government debt in secondary markets. 2011). July 2011. after two successive cuts in interest rates. Ireland. Economic research shows that there are many determinants of sovereign credit risk or sovereign borrowing costs. Toward the end of 2011. Similarly. an important source of bank liquidity. and October 2011). Portugal. Since early 2010. the sovereign-debt crisis intensified in Italy and Spain. and Greece (May 2010. Italy. While these measures have helped contain the sovereign-debt crisis in Europe. the economies of Estonia. Longstaff et al. leading to deteriorating conditions of both solvency and liquidity among European banks. but those in Greece. significant risks remain.) As concerns about sovereign debt rose. both sets of factors raised borrowing costs for some smaller and a few larger economies in the euro area. Italy.

2010–2012 a.  and  France   Basis  points   600 500 400 Italy Spain Belgium France 300 200 100 Jan.Figure 5-3 10-Year Bond Spreads Over German Bonds.  Spain.  31   0 Jan-­2010 Jul-­2010 Source:  Bloomberg.  Greece  and  Portugal   Basis  points   3.200 800 Portugal   400 0 Jan-­2010 Jul-­2010 Source:  Bloomberg.600 3.800 2.400 2.000 Greece   Jan.  Italy.  31   1.     Jan-­2011 Jul-­2011 Jan-­2012 b.  Belgium.   134 | Chapter 5 Jan-­2011 Jul-­2011 Jan-­2012 .200 2.600 1.

Such financial data are being monitored closely. Among other things. in recent years. in contrast to U. adverse financial conditions in Europe can be transmitted to American financial institutions. In turn. multinational firms totaled $3. of growing importance relative to the rest of the world. and. accounting for $173. According to the Federal Reserve’s Senior Loan Officer Opinion Survey. service exports.S. trade and investment links between the United States and Europe are broad and deep.) Similarly. including derivatives. exports. the Federal Reserve provides dollars for periods ranging from overnight to as long as three months in exchange for the currency of the foreign central bank. and other foreign banks. several European branches tightened standards on commercial and industrial (C&I) loans over the second half of 2011.S.S. A currency liquidity swap is an agreement between two or more parties to exchange a set amount of a given currency for another currency at a given price until a specific date in the future. and subsidiaries of European banks in the United States. making up more than half of the $6.S. see Data Watch 5-1. the new law supports trading of financial instruments on central exchanges. In addition. multinational firms. accounting for more than 20 percent of U. of all foreign direct investment (FDI) inflows into the United States in 2010. The Federal Reserve also extended and reduced the cost of dollar liquidity swap arrangements to the ECB. the ECB’s new longer-term refinancing operation extended the maturity of loans offered to banks from one year to three years. or 76 percent. Europe is the leading foreign source of investment and jobs in America. sales by European affiliates of U. helping to relieve funding pressures in those markets and to prevent the spread of strains to markets elsewhere.S. Europe is a significant destination for U. as it had done during the credit freeze of 2008–09.1 trillion in total sales abroad by U.1 trillion in 2008. In this case.2 billion. banks and the presence of branches. One of the goals of recent financial oversight embedded in the Dodd-Frank Wall Street Reform and Consumer Protection Act is to reduce systemic risk by increasing transparency. agencies. goods exports and nearly 40 percent of U.other measures. Furthermore. Given the interconnectedness of European and U.S. International Trade and Finance | 135 .S. The C&I loans on the books of European branches in the United States have in fact declined noticeably since the middle of 2011. the foreign central bank can lend the dollars during the specified period in its local markets. (For a discussion of the role of the Office of Financial Research in fostering transparency. and the ECB eased collateral requirements for those loans.

Critically. the OFR will collaborate with the member agencies of the Financial Stability Oversight Council to identify and fill deficiencies in the collection of 136 | Chapter 5 . this legislation permits the acquisition of data from financial institutions related to their activities globally that may pose a threat to the financial stability of the United States. The inadequacy of information available to assess risks properly magnified that flight from risk (Squam Lake Working Group 2009). neither market participants nor policymakers were aware of the extent to which leverage. The resulting credit crunch ultimately triggered a global economic recession from which many countries are still recovering. the OFR has laid the critical groundwork for enhancing both the quantity and the quality of financial information that is available to U. Standardized data would make it easier for policymakers to accurately evaluate whether a financial institution or group of institutions—located either domestically or abroad—or certain financial activities in which they may be engaged pose a threat to the U. While the initial catalyst for the financial crisis was a decline in U. First.S. OFR is charged with improving the quality of financial information. as defaults on mortgages multiplied.S. The creation of the OFR in that Act addresses two glaring deficiencies in the financial data infrastructure that were revealed by the crisis. given the interconnectedness of global financial markets. they triggered a wholesale flight from related financial securities. Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (PL 111-203). financial regulators.S. 2010. housing prices that in 2007 led to a dramatic rise in subprime mortgage defaults (Brunnermeier 2009).Data Watch 5-1: The Significance of the Office of Financial Research (OFR) in Combating Global Risks to the U. The OFR is in the midst of comprehensively cataloguing the data that are currently held and collected by U. which spread across countries and financial markets.S. Financial System The recent financial crisis presented a stark example of the need for comprehensive data on the financial system. and other assets that were supposed to stand behind their investments. the OFR is charged with increasing the availability of financial information so that policymakers can better identify. real estate. Concurrently.S. Second. Over the past eighteen months. Responding to the devastating effects of the financial crisis. in part by standardizing the types and formats of data that are reported to regulators. financial system. policymakers.S. It became clear that investors had placed too high a value on the underlying homes. Consequently. financial system. on July 21. and a web of interconnected transactions and claims had built up in the financial system prior to that time. reliance on ultra-cheap short-term funding. analyze and monitor potential risks to the U.

and West Virginia. the IMF forecasts that economies in the euro area will contract by 0. the crisis in Europe has slowed both current and predicted growth. policymakers have partnered with the global financial services industry.6 percent. economy through two channels in addition to the finance channel mentioned above: trade and direct investment. The IMF estimates that euro-area growth in 2011 was 1.1 percent in 2012 compared with 1. compared with a historical average of 77.S. U. Exports. and semiconductors. but for 2012. Moreover. Economic growth projections for the European Union for 2012 are lower than for 2011: -0.S. as displayed in Figure 5-4. to coal. Massachusetts.S. South Carolina. and associations such as the International Organization for Standardization to develop and begin to implement a universal standard for identifying counterparties to financial transactions (Department of Treasury 2011). Economy As noted.S. At the G-20 Cannes Summit. reaching an all-time low of 36 points. Exports range from cars. exports to Europe are distributed broadly across the United States. kaolin. Likewise. Connecticut. In time. The European Union is the destination for more than 20 percent of total goods exports from Alabama. A slowdown in Europe could affect the U. Faltering consumer confidence in Europe has spread to countries outside the euro area. Shrinking purchases of International Trade and Finance | 137 . As is the case with flows of inward investment. service exports go to Europe. aircraft. Britain’s Nationwide Consumer Confidence Index fell for the fifth month in a row in November 2011. more than one-third of U. foreign regulators. and live chickens. the OFR has taken an important step toward enhancing the quality of the financial data infrastructure through the promotion of a global Legal Entity Identifier (LEI) for financial institutions.6 percent for 2011 (IMF 2012). A severe financial episode in Europe could reduce exports from businesses throughout the United States. as noted. trade with Europe because. The share of U. gold. soybeans. export data for commodities underestimate the extent of U. goods exports to Europe has been over 20 percent for decades.data on financial markets. leaders supported the development of a global LEI and tasked the Financial Stability Board with coordinating this work.S. Outlook for Europe and Implications for the U. Indiana.5 percent. further initiatives will be undertaken to meet the information needs of regulators in fulfilling the mandate of the Dodd-Frank Wall Street Reform Act and responding to potential threats to the financial stability of the United States.S.

over 75 percent of which came from Europe.S. The Administration 138 | Chapter 5 .  Census  Bureau.S. and Georgia. Illinois. Foreign Direct Investment.   Source:  U.    Products  with  multiple  stages  of   production  often  move  across  state  boundaries  more  than  once  before  leaving  the  country. In the last decade. While Europe has the capacity to take responsibility for addressing its crisis through decisive policy action and a credible financial backstop. followed by Alaska.  Foreign  Trade  Data. Frankel and Wei (2005). employment in several states. International Cooperation in Resolving Crises The data in Figure 5-3 starkly reflect growing concerns of market participants regarding the scope and magnitude of euro-area bank and sovereign-credit risk. the United States has made clear that the international community has a strong interest in the successful resolution of the crisis. Indiana. FDI flowed into every state. Declines in output.Figure  5-­4   Share  of  Each  State's  Goods  Exports  to  the  European  Union  by  State. The United States received more than $228 billion in FDI from all foreign sources in 2010. Ohio. Alabama. Reinhart and Rogoff (2009). Reinhart.     American goods and services by Europeans could have a significant impact on U. South Carolina. and investor confidence in Europe could have an adverse effect on the ability and willingness of European firms to invest in American firms and jobs. systemic risk related to financial crises has received more attention in the economics literature.   2010   Legend <  5% 5%  -­  9. Kaminsky. with Texas receiving the most. including studies by Allen and Gale (2000). Between 2004 and 2010. and Vegh (2003). and Ang and Longstaff (2011). profit.9% 15%  -­  20% >  20% Note:  This  map  depicts  the  state  from  which  the  product  is  last  shipped. California.9% 10%  -­  14. New York.  which  is  not   necessarily  the  state  in  which  the  product  is  produced.

is engaging with European governments both bilaterally and in multilateral forums. and firms. a more substantial financial firewall to ensure that governments can borrow at sustainable interest rates while executing policies to strengthen the foundations for growth and to reduce their debts. At the same time. The Administration continues to urge movement along several dimensions in Europe: robust implementation of countries’ agreed fiscal and structural reform programs. it was at least as rich as southern Korea. Economy Experience and economic theory suggest that a global economy can provide enormous advantages for American workers. consumption. consumers. U. Before Kim Il-Sung seized power in northern Korea. and it can take advantage of only those natural resources within its borders. in part. and growth. economic performance will depend. One of America’s achievements after World War II was helping to build the open and integrated global trading and investment system that now incorporates almost all of the world’s economies. The Obama Administration has focused on meeting the challenges of this system in ways that enable American workers and firms to make the most of the rich opportunities provided by a more open global trading and investment system. coordination with international partners remains essential. International Trade. it can invest only what it saves. along with opportunities. a nation that has pursued this kind of isolation assiduously. Countries that have deliberately cut themselves off from international trade and investment for extensive periods of time have paid a stiff price in forgone opportunities for investment. North Korea. and the U. and measures to ensure that European banks have sufficient liquidity and are adequately capitalized to maintain the full confidence of depositors and creditors. the Administration has sought to ensure. per capita GDP in South Korea is over 17 times higher than that of North Korea. a country can consume only what it produces. it can use only the technology that it creates. in the context of steps that euro-area leaders have outlined to reform fiscal governance in the euro area. Today. through strong enforcement International Trade and Finance | 139 . this system brings challenges. The United States has also been involved in the response to the crisis through its role in the IMF. illustrates this point in a powerful and tragic way. In such times of global economic and financial disequilibrium. Global and U.S. on the swift resolution of problems in the euro area.S. Of course. In the absence of international trade and investment.S. Foreign Direct Investment.

One such attractor is the sheer size of America’s domestic market. By 2010. Through the third quarter of 2011. their inflows remained substantially below those into the United States throughout this period. FDI inflows into the United States were running roughly 4 percent below 2010 levels. The Nation continues to offer a set of “fundamental attractors” to foreign investors that other countries struggle to match. If the global economy returns to normal growth rates. that other countries play by the rules of the system. a highly skilled. India. Given the rapid GDP growth of large emerging markets such as Brazil. Nevertheless. and the United Kingdom) and more than five times China’s cumulative inbound FDI stock ($579 billion). As both the U. total FDI flows were roughly 60 percent of their 2007 levels. the United States remained the largest destination for new FDI inflows. In 2010. and it has sought to protect those who are potentially adversely affected by global competition with a stronger safety net and an improved training and reemployment system (discussed in Chapters 6 and 7). Then. rising when the global economy expands and contracting when it shrinks. attracting investment by firms eager to conduct worldclass research in close proximity to the world’s top universities.5 trillion— more than three times the FDI stock in each of the next three largest recipients (Hong Kong. both before and after the global financial crisis. 140 | Chapter 5 . and China. motivated workforce. as global growth slowed again in 2011. FDI flows tend to be procyclical.efforts. FDI into the United States also decelerated. a highly developed financial system.S. the cumulative FDI stock in the United States had reached nearly $3. FDI inflows into the United States increased 49 percent from 2009 to 2010. by 2009. and effective protection of property rights. leading companies around the world continue to be attracted to investment opportunities within the borders of the United States. For all of these reasons. as the global economy sank into its deepest postwar recession. Like trade flows. it is not surprising that these countries and other emerging markets are absorbing an increasing fraction of the world’s FDI. In late 2008 and 2009. Nonetheless. the world’s second-largest economy. Investment in the United States by Foreign Companies The United States had the largest annual flow of inbound FDI of any economy in the world in every year between 2006 and 2010. America’s GDP was nearly two-and-a-half times larger than that of China. France. The United States also offers potential investors a strong rule of law. The United States continues to lead the world in key technologies. FDI inflows into the United States will likely resume their growth. FDI inflows around the world contracted (Figure 5-5). and global economies recovered from the recession.

goods exported. As U.S. Keller and Yeaple find that 14 percent of the aggregate productivity growth between 1987 and 1996 (a period of rapidly rising FDI in the United States) resulted from FDI-related productivity spillovers.  2006–2010     $  Billions   350 300 250 United  States   200 150 100 50 China   Brazil   Russia   India   0 2006 2007 2008 2009 2010 Source:  United  Nations  Conference  on  Trade  and  Development  (UNCTAD). Economic research shows that the benefits of foreign investment are even greater than these measures indicate. According to its data. more than 11 percent of all U.S.S.S. private-sector jobs.S. the benefits can “spill over” to their American competitors (Keller and Yeaple 2009). more than 14 percent of all U. and 19 percent of all U.S. employees of these global companies earned an average annual compensation of about $73.S. output.000—about one-third more than the economy-wide average. private-sector R&D. research and development (R&D). Department of Commerce surveys the activities of foreign-owned affiliates in the United States. operations. firms increasingly interact in their home market with highly productive foreign subsidiaries. the U.S.  Selected  Countries.S. the U.Figure  5-­5   Annual  FDI  Inflows. subsidiaries of foreign companies accounted for nearly 5 percent of U. The Bureau of Economic Analysis (BEA) of the U. When foreign subsidiaries use advanced technologies and effective management to achieve high levels of productivity in their U. private capital investment. firms may be able to learn from their competitors’ strengths. In that year. employment. These spillovers were International Trade and Finance | 141 . investment.S.S.   The Benefits of FDI. affiliates of foreign firms make significant contributions to U. in 2008. and exports. U.

assist. embassies and consulates to organize events abroad that enable U. SelectUSA is the first systematic Federal Government initiative to identify. and regional economic development organizations (EDOs) facilitate business investment attraction. the Obama Administration has set up SelectUSA. and expansion.particularly valuable for small firms. Staff respond to investment inquiries. a “one-stop shop” based in the Department of Commerce that helps both foreign and U. SelectUSA can help these organizations compete more successfully with alternative production sites outside the United States. and educate investors regarding relevant U. President Obama has recently called for a substantial increase in support for SelectUSA. locales to promote themselves as a destination for FDI. investors find the best options for their prospective businesses within the borders of the United States.S. While foreign firms sometimes establish entirely new enterprises in the United States. inform.S.S. Finally. The Obama Administration has taken vigorous steps to facilitate and promote inward FDI in the United States. and Harrison 1997). Finally. SelectUSA works with U. they more often gain a foothold in the U. One reason proximity matters is that employees who move from foreign firms to domestic firms are often an important conduit through which knowledge diffuses from foreign to domestic firms (Poole forthcoming). retention. which do not routinely encounter these competitors in markets outside the United States. but the United States can also benefit from such connections. It is also finding ways to partner with state and local economic development agencies. As emerging markets expand. working across the Federal Government to address investor concerns and issues involving federal agencies. Hanson. proposing 142 | Chapter 5 . EDO officials and U. SelectUSA staff and senior leadership also serve as ombudsmen for the investment community in Washington. and attract potential investors to the United States.S. local. market by merging with or acquiring existing domestic businesses. the forces of economic gravity are likely to pull more and more of the world’s FDI inflows into these economies. help connect investors to appropriate federal and state agencies. it can also function as an important resource for these organizations on international investment issues.S. so that governments at all levels can coordinate efforts to attract investment. FDI can help connect domestic firms to export networks and opportunities. policies and procedures. Recognizing the reality of greater global competition for FDI. SelectUSA’s activities cover a broad range of investment promotion functions. Encouraging FDI in the United States. state.S. The importance of such connections is well documented in developing countries (Aitken. In the United States. These transactions can be beneficial. with newly constructed plants and newly hired workers (known as “greenfield” investment).

S. and Foreign Commercial Service officers in key markets. or invest in the capability to produce clean energy products within the borders of the United States. The National Export Initiative In his January 2010 State of the Union address. exports have grown even faster.S. Table 5-1 ranks U. These new officers will enhance the ability of the U. exports must grow an average of 15 percent a year. U.16 trillion by the end of 2014. surpassing the pre-crisis peak level of $1. The top 10 categories collectively account for 72 percent of the total value increase in exports between the two periods. its technological prowess. To meet that goal. International Trade and Finance | 143 . export goods categories in order of the biggest increases in export value between the first half of 2009 and the first half of 2011. the Federal Government can help ensure that the United States remains a premier destination for foreign direct investment for many years to come. In fact.S. total U. firms to move jobs and production offshore.S.S.S. as well as additional tax incentives for firms that manufacture.7 trillion and establishing a historical record.S. At the same time. Current data suggest that the ratio of exports to GDP nearly reached 14 percent in 2011.58 trillion to an annual level of $3. the President’s proposals eliminate incentives for U.08 trillion.S. nominal U. economy on track to meet the President’s goal. despite the recent global trade slowdown. putting the U. By complementing the United States’ fundamental attractors with well-targeted FDI promotion efforts. Complementing this investment. global network of embassies and consulates to promote FDI in the United States. another historical record.$12 million in new resources and an increase in staff to 35 full-time employees. President Obama has proposed to increase the presence of the Department of Commerce’s U. trade data provide an interesting picture of the markets and goods in which America’s export growth has been concentrated since the global financial crisis. Over the 12 months ending in November 2011. conduct R&D. reflecting America’s abundant endowments of human and physical capital. Anatomy of Recent Growth in Goods Exports.S. President Obama has also called for tax reforms that will help attract more FDI. The biggest increases have been concentrated in manufacturing industries characterized by high technology and capital intensity and in primary products. These proposals include a decrease in the United States’ corporate income tax rate. President Obama set a goal of doubling U. exports of goods and services exceeded $2. So far. exports of goods and services in five years. meaning that nominal exports would double from their 2009 level of $1. and its natural-resource wealth. the United States is currently ahead of schedule.

over the two-year period. highly productive 144 | Chapter 5 .8 percent over the same period. productivity growth has been especially strong in the manufacturing sector.Between the first half of 2009 and the first half of 2011. which increased by 51. tradable goods sector. respectively. for the first time in decades. its exports of engines. a broader category not shown in the table. These data point to America’s competitiveness in important sectors of manufacturing. At the same time. This strength is also reflected in the impressive growth of total agricultural exports. reflecting the high prices of those commodities on international markets. and that America’s agricultural sector recorded a trade surplus of $42 billion over that period.S. these technological developments are reviewed further in Chapter 8. agricultural exports reached a record high of $137. U. and U. The sharp growth in goods exports reflects. and 78 percent.4 billion in Fiscal Year 2011. Exports of gold. Exports of mineral fuels and oils (a commodity dominated by shale oil) surged by 150 percent. Fuel exports have grown so much that the United States became a net exporter in 2011. organic chemicals. That surge stems from technological breakthroughs in horizontal drilling and hydraulic fracturing that are allowing U. the data reaffirm the United States’ strength as an exporter of natural-resource-intensive goods. Department of Agriculture reports that U. net imports of crude remain large relative to net exports of fuel products.S. It also reflects the impact of coordinated Federal Government action flowing from the President’s National Export Initiative. and its exports of electrical machinery by more than $19 billion (33 percent). particularly in manufacturing. The U. the impact of recovering from the depth of the global financial and economic crisis. in part. but increased domestic production is offsetting some crude oil imports.S. appliances.S. an expansion of $24 billion in dollar terms. and precious metals grew 94 percent. farmers. and producers are benefiting from the Administration’s focus on free trade agreements and increased market access abroad. Trends Driving Growth in Goods Exports. The United States remains the world’s largest importer of crude oil.S.S. Exports of cereals grew 77 percent. the United States increased its exports of vehicles by more than $26 billion (83 percent). producers to extract oil from previously unusable areas. and U. These actions amplify the positive influence of longer-term trends that are enhancing the competitiveness of the U. reflecting America’s strength as a producer of agricultural commodities. Exports of plastics. and steel and ferrous metals increased by 53 percent. workers are more productive than those of any other G-20 economy. diamonds. However. America’s ranchers. or more than $35 billion. and general machinery by more than $25 billion (35 percent). 57 percent.S.

2011) ($ Billions) Mineral fuels (including shale oil) 27 35. 2010– Aug.3 Vehicles and parts 87 26. trading partners.9 Plastics 39 10. Since then. Source: U. by Product Product HS-code Export growth.3 Precious metals and gems 71 16.6 94 64. This disadvantage was especially severe in the early years of the 2000s when the enduring effects of earlier financial crises in many parts of the world depressed production costs in much of Asia. Goods Exports. particularly in the manufacturing sector.8 150 113.4 Figure 5-6 displays changes in manufacturing unit labor costs for some of the key economies tracked by the BLS. but rapid productivity growth in the United States has reduced the cost of producing a unit of manufactured output.4 Optical equipment and medical devices 90 7. only Taiwan managed to improve its unit labor cost position more than the United States did.5 78 23. Russia.S. in some cases substantially. continued robust productivity growth in the United States.0 57 44. and general machinery 84 25. Brazil. 4 Although the BLS does not track Chinese unit labor costs.1 33 157.S. U. The result has been a sharp improvement in relative unit labor costs in the United States. and elsewhere. 2009:H1–2011:H1 Change ($ Billions) Change (% ) 12-month sum (Sept.S.8 Iron and steel 72 5. dollars.7 Engines. Of the 19 economies tracked by the BLS.4 24 78.S. the U. measured in U.7 Electrical machinery and equipment accessories 85 19. and the most recent movements in this index suggest that Chinese unit labor costs are also rising.S. Meanwhile.3 83 112.S. For example.0 Cereals 10 6. the cost of producing a unit of manufactured output in key trading partners has risen. appliances.8 Note: Export growth is measured between the first half of 2009 (2009:H1) and the first half of 2011 (2011:H1). it has tracked an index of import prices from China since 2003. has been reinforced by a gradual realignment of the currencies of many U. U.7 35 198.S. International Trade Commission.2 53 57. Bureau of Labor Statistics (BLS) tracks changes over time in the unit labor cost of manufacturing in the United States and in key trading partners. workers can be placed at a competitive disadvantage because of low labor costs abroad. hourly compensation in manufacturing has grown over the past decade.5 Organic chemicals 29 8.Table 5-1 Growth in U. International Trade and Finance | 145 .7 77 27.

1   44.S. the United States has added more net manufacturing jobs since the start of 2010 than the rest of the Group of 7 countries put together. market but also to use U.  2002±2010   Percent   100 79.   The impact of these shifts can be seen in a number of industries including the auto industry.8   2. production.S. both to serve the U. manufacturers have added jobs for two consecutive years. Such plans include insourcing production of its F-650 and F-750 medium-duty trucks to Ohio from Mexico. Ford has announced intentions to increase investment in the United States.0   80 67. with over 300.6   60 40.1   17. auto demand recovers.Figure  5-­6   Change  in  Manufacturing  Unit  Labor  Costs. the Big 3 domestic auto companies and the foreign-domiciled companies have been expanding U.1   20. signs suggest that the United 146 | Chapter 5 . U.S. This expansion is designed not only to serve the U.9   Singapore   Japan   United     Korea   Sweden   Germany   France   Canada   Italy   Kingdom   United     States   -­40 Source:  Bureau  of  Labor  Statistics. Improved competitiveness also appears to be reflected in employment data.S. As of the most recent period for which comprehensive data are available. market and to export.S.1   -­23. something that had not happened since the late 1990s.S.0   Taiwan   -­10.8   2. it also reportedly plans to move manufacture of components like transmission oil pumps from China to Michigan. While the economy is still far from recovering all the manufacturing jobs lost during the recession. Manufacturing employment has grown faster in the United States than in any other leading developed economy since the start of the recovery.8   40 20 0 -­20 14. production sites as an export platform from which to serve other markets within the Americas and beyond.000 created since December 2009. As U.

workers. such as those within the Marcellus Shale Formation.S. facilities over the next several years. to offset the higher wages and other labor compensation they pay their U. The Obama Administration is taking steps to ensure that this resource is developed in a safe and environmentally responsible way.8 percent in Canada. manufacturing employment rose 2.S. firms. Without adequate domestic supplies of natural gas at reasonable prices. since they have increased the efficiency of U. the increased supply from this resource supports energy-intensive manufacturing in the United States. producers rely principally on high productivity. companies such as Dow Chemical and Westlake Chemical have announced intentions to make major investments in new U. in most of the manufacturing industries where American firms continue to enjoy robust export sales. and the development of hydraulic fracturing techniques to extract natural gas from these reserves have led to rapidly growing domestic production and relatively low domestic prices for households and downstream industrial users.S. rather than inexpensive inputs. export expansion was driven by exports to Asia. In some industries. at least in some product categories. however. Export flows to Canada and Mexico increased by nearly $80 billion. productivity is reinforced by the additional advantage of abundant. one of their key inputs. Much of the rest of the U. the advantage created by high U.5 percent in the United States compared with 2. In the longer run.) As a consequence. U. low-cost natural gas. Only a few years ago.States may be experiencing a manufacturing revival. 2011 for recent research. In fact. the discovery of new natural gas reserves. Between 2010:Q1 and 2011:Q3. By keeping domestic energy costs relatively low. leaders of the domestic organic chemical industry predicted that shortages in natural gas would dramatically raise the domestic price of natural gas. Exports can also be measured by looking at major destination markets. Table 5-2 ranks destination markets by the increase in value of exports between the first half of 2009 and the first half of 2011.S.S.S. even extremely low wages in developing countries are not sufficient to provide a commanding cost advantage with respect to U. domestic. it seemed likely that chemical production would have to shift overseas. Even the tsunami-battered Japanese economy purchased nearly $8 billion more International Trade and Finance | 147 . (See Hsieh and Klenow 2009. The top 10 markets collectively accounted for 70 percent of the total increase in export value. However. The openness and competitive intensity of the American economy have been a key source of our national strength. the scale of America’s natural gas endowment appears to be large enough that exports of natural gas to other major markets could be economically viable. firms and industries.S. Since the mid-2000s.4 percent in Germany and 1.

148 | Chapter 5 . Mainland 19.S.Table 5-2 Dissection of U. exports are just one component of the current account balance.S.3 Hong Kong 6. absorbing a 71 percent increase in U.1 China. the U. and the difference primarily reflects the impact of the other two main elements of the current account—services trade and the U.2 63 102. A look at the recent history of the U. income balance. exports of goods are at historical highs. current account balance and its key components reveals some interesting patterns.S. exports and imports of services.7 31 64.S. businesses. The Role of Services in Export Growth and America’s Current Account Balance While export growth is critical. International Trade Commission.4 71 40. Although U.0 72 42. slightly exceeded export growth to Japan.9 71 31.S. Goods Export Growth. and the income balance—the difference between the income American firms earn from their foreign businesses and the income foreign firms earn from their U.2 Mexico 36. the most comprehensive measure of the Nation’s exchange of goods and services with the rest of the world. by Market Market Export growth.9 Taiwan 6.S. current account. however.1 20 193. in U.5 Singapore 5.0 51 30.2 Euro Area 16.2 Republic of Korea 9. The main components of the current account include exports and imports of goods.5 Note: Export growth is measured between the first half of 2009 (2009:H1) and the first half of 2011 (2011:H1). 2010–Aug.0 80 27. exports that. is following a different path now than it did in the previous recovery.S.2 Japan 7. Outside of North America and Asia.S. 2009:H1–2011:H1 12-month sum (Sept. Source: U. Brazil continued to display its emerging economic importance.3 62 187. as an expanding economy has boosted demand for imports (Figure 5-7). trade deficit in goods (which does not include trade in services) has nevertheless widened significantly since early 2009. The trajectory of the U. in dollar terms.1 45 272.1 Brazil 8.S. 2011) ($ Billions) Change ($ Billions) Change (% ) Canada 43. exports in the first half of 2011 than it did in the first half of 2009.S. reflecting in part the improved competitiveness of American manufacturers.

Like most other advanced economies. and the income balance grew even more rapidly.S. but the services surplus expanded and the income balance grew even more sharply. The balance on goods remained in deep deficit.   International Trade and Finance | 149 . and the two series moved closely together (this time rapidly toward balance) through early 2009. but the trade surplus in services began to increase. U.  services. GDP. The two series began to diverge in late 2007. GDP is dominated by service industries. the role of business services within Figure  5-­7   U.   Source:  Bureau  of  Economic  Analysis.From the early 2000s through 2006.S. federal policymakers recognize the need not only to encourage exports of goods. account for more than 60 percent of U. When the global financial crisis hit in earnest in the third quarter of 2008. More recently. According to the Bureau of Economic Analysis. However.  Current  Account  Balance  and  Its  Components. The Prospects for Trade Growth in Services. a gap opened up once again. as financial markets stabilized and growth resumed.S. but also to expand the important role that services trade can play in that process. growth and import demand dried up. whereas the services surplus and the income balance continue to grow.  but  does   not  include  unilateral  transfers.S. With a need to further strengthen the current account balance. the goods trade balance appears to have broadly stabilized. broadly defined. the current account balance tracked the trade balance in goods quite closely. largely offsetting the declining balance in goods and keeping the current account relatively stable.  and  income. The balance on goods deteriorated. U. Then.  2000–2011   $  Billions   100 Balance  on  income   50 Balance    on  services   0 -­50 -­100 Overall  current     account  balance   -­150 Balance     on  goods   -­200 -­250 2000:Q1 2011:Q3   2002:Q1 2004:Q1 2006:Q1 2008:Q1 2010:Q1 Note:  The  current  account  balance  above  includes  goods. services.

a collection of industries that includes finance.000) (Jensen 2011). They now account for nearly 30 percent of total U.S.S. advances in communications technologies and the growing ease and declining expense of international travel are making business services increasingly tradable across countries. a public-private partnership dedicated to promoting travel to the United States. while manufacturing employment decreased more than 20 percent. What are the categories of services exports. growing by 114 percent between 1997 and 2010. Imports of services have also expanded rapidly. was significantly higher than in manufacturing ($46. travel exports with unprecedented federal action to promote international tourism in the United States. In other words. according to official data.S. workforce according to data from the Economic Census. employment in the business service sector increased almost 30 percent between 1997 and 2007. already large. which the United States has in large numbers. has more than tripled since 2003. while travel imports reflect purchases made by U. and what is their relative contribution to the surplus? Figure 5-8 depicts the aggregate service trade flows in the five main categories tracked by official statistics and measures their contribution to America’s overall services trade surplus. now known as Brand USA. and the average wage in business services. residents traveling abroad. Travel exports reflect the spending of foreign tourists and business travelers to the United States who purchase goods and services here. In 2010. In 2007. economy is less widely recognized. a year unaffected by the recent severe downturn and gradual recovery. the President signed into law the Travel Promotion Act.000. but the U. the growing tradability of business services plays to America’s comparative advantage. The Obama Administration has sought to expand U. research and development services. surplus in services trade. As this trend gained strength. $56. Some evidence of this potential is apparent when one looks at the broader context of America’s trade across the full range of service industries. Most tradable business services rely intensively on highly skilled experts.S. The share of employment in business services was substantially larger than in the entire manufacturing sector in that year (10 percent). which established the Corporation for Travel Promotion. engineering services. exports.the U. business services.S. While services remain more difficult to trade than goods. The State Department has also increased its visa-processing capacity in priority countries like Brazil 150 | Chapter 5 . The United States remains among the world’s leading tourist destinations and runs a surplus in travel trade.S. employed 25 percent of the U. Services exports have expanded dramatically. and software production.

S. residents International Trade and Finance | 151 . but also lower travel imports as it will provide Americans with more and better choices of travel and tourism destinations within the United States. state. the President established a Task Force on Travel and Competitiveness that will develop a National Travel and Tourism Strategy with a goal of making the United States the world’s top travel and tourism destination. on January 19. public expenditures on the National Park System (NPS) are much lower than the benefits they provide to all Americans.S.   and China to ensure that the United States benefits from the rapid expansion of outbound tourism from these emerging markets. The benefits of that strategy include not only the potential increase in travel exports. imports are those paid by U. While there are many private.  2010   $  Billions   90 72   70   Royalties  and license  fees Other  private services 70 50 30 28   10 -­10 4   Travel Passenger  fares -­11   Other transportation -­30 Source:  Bureau  of  Economic  Analysis. In the category of passenger fares. and local destinations in the United States. Moreover. exports are those received by U.dŚŽƵƐĂŶĚƐ Figure  5-­8   Contribution  to  Services  Surplus  by  Service  Sector  Category. even to those who are not necessarily planning a vacation or visit to one of the 397 destinations that make up the NPS (National Research Council 1996). carriers from foreign residents. This provides yet another example of the ways in which investments in the environment yield benefits for the economy (Chapter 8). the government has an important role in ensuring that national treasures such as Yellowstone National Park and the Statue of Liberty are appropriately maintained and made accessible to domestic and international tourists. Because of their value as public goods.

152 | Chapter 5 . firms totaled $1. and it is this category in which the promise of business services exports is seen.S. America’s receipts for the use of its intangible assets. and business. highlighting the importance to the United States of enforcement of strong intellectual property rights in other countries.to foreign carriers. services supplied through the foreign affiliates of U. services provided through affiliates have grown rapidly. this category was the largest single contributor to the services surplus. customers also 5 In fact. U. U. perhaps substantially. financial. services trade. land.S. professional. This supply of skilled workers and the broader role that education plays in the U.S. other private services (OPS). service export flows to these countries are likely to grow. OPS exports expanded by about 150 percent from 2000 through 2010—a compound average growth rate of nearly 10 percent a year. U. insurance. As rapid economic growth raises income levels in large emerging markets. The main services included in OPS are education.S.1 trillion. which are involved in the production of goods. Of course. however. pipeline. the most recent year for which comprehensive data are available. and other intellectual property rights. including patents and trade secrets. franchises. and technical services. the official numbers for royalty and license fees may understate. Royalties and license fees cover transactions with nonresidents that involve intangible assets. and technical services—accounts for more than half of OPS exports. and in 2009. firms provide services through affiliates in foreign markets. royalties and license fees. the surplus in services is disproportionately driven by two categories—other private services and royalties and licensing—that are skillintensive and thus conform to America’s comparative advantage as a technologically advanced nation with an abundant supply of highly educated workers.5 The final category. telecommunications. international transactions arising from the transportation of goods by ocean. Second. In 2010. professional. software licensing fees. A report submitted last year by leading international economists (Feenstra et al. The most important subcategory—business. rights to reproduce or distribute motion pictures and television recordings. as noted. 2010) noted the ability of multinational corporations to effectively locate their intellectual property in low-tax jurisdictions. trademarks. Other transportation exports and imports include U.S. both as markets and as suppliers. This category also includes copyrights. air. minimizing their global tax liability as well as measured U. labor market is discussed in Chapter 6. and inland water carriers. rights to broadcast live events. Over the past decade. In addition to exporting services.S. The additional detail on service exports and imports presented in Table 5-3 and Table 5-4 underlines two important facts about U. Altogether. the other advanced industrial countries are still America’s dominant trading partners in this sector.S. generates by far the highest level of exports. First.S.

firms become export-ready. The difference between services received from and supplied to the United States via the channel of affiliate sales was $407. Fixed costs for firms are associated not only with the decision to begin exporting but also with the decision to export to a specific country. the Department of Commerce’s International Trade Administration maintains offices of trade professionals in more than 100 U. It can also seek to ensure that American firms face a level playing field by insisting that U. bilateral. Federal programs exist to help firms deal with these costs. in circumstances in which a particular exporter faces financing constraints or the threat of subsidized finance for international competitors. These purchases totaled $668. The costs of serving a particular foreign market may also increase if the firm’s products and complementary services must be significantly altered to meet the demands and tastes of customers in that market. firms. or regional trade negotiations to reduce the costs imposed on U. 2003. which operates under a different legal system and may use a different language. a prospective exporting firm must develop a strategy that allows it to compete successfully against experienced rivals in that country. communities and 77 foreign countries to help U.S.purchase services from the U. Successful exporters must invest considerable management attention and time to developing this strategy before they can begin to earn any returns from exporting.S. These costs are worth incurring only if the firm is dynamic and productive enough to have a high probability of success.S.S.S. providing yet another reflection of America’s comparative advantage in this domain (Koncz-Bruner and Flatness 2011).S. firms by foreign tariff and nontariff barriers. identify target markets. firm productivity and the fixed cost of exporting as fundamental determinants of U. exports at the firm and product level (Bernard et al.8 billion in 2009. While private firms must take the lead in crafting their export strategies. Finally.6 billion. the Federal Government can seek to alleviate these constraints and counter foreign International Trade and Finance | 153 . trading partners honor their treaty commitments regarding market access for U. The Federal Government can also use effective multilateral.S. Policy Initiatives to Support Export Growth in Goods and Services Recent economic research has focused on U. and navigate the demands of foreign regulation and cultural differences. Exporters also must incur the costs of finding distribution channels in the foreign country and the ongoing costs of transporting their goods across national borders and contending with tariff or nontariff barriers to trade. Melitz 2003). Before significant exports to a given country can begin.S. affiliates of foreign firms.

182 2.331 5.936 105.659 20.445 Germany 22.278 1.984 8.441 6.078 33. Table 5-4 Cross-Border Services Imports by Type and Country.704 11.279 51.629 China 21.473 1.616 China 15.683 998 3.680 59.016 11.507 27.840 1.740 245 974 16 30.705 3.916 Ireland 24.135 3.665 630 399 1.505 Japan 25.632 3.843 3.169 8.296 3.750 10.187 10.501 Switzerland 20.117 2.287 18.272 19.958 41.541 39.447 3.730 8.Table 5-3 Cross-Border Services Exports by Type and Country.641 4.530 Canada 50.887 4.555 10.790 Other countries Source: Bureau of Economic Analysis.379 61.976 124.248 2.594 44.579 6.225 2.652 4.142 948 1.110 6.450 180.748 5.036 75.817 5.999 697 904 379 2.539 501 4.864 26.475 France 15.598 Total for the top 10 countries 215.107 3. 2010 2010 Imports ($ Millions) Country Royalties Passenger Other transand license fares portation fees Other private services Total private services Travel All countries 368.377 Germany 24.521 16.641 6.721 15.202 33.236 1.313 1.382 25.526 11.198 4.967 2.505 30.541 3.562 3.281 9.067 2.670 7.820 8. 154 | Chapter 5 — .108 207 156 141 11.320 Total for the top 10 countries 290.583 250.515 4.464 Japan 44.865 239.123 6.031 25.489 Mexico 19.765 2.780 1.612 1.409 1.376 Mexico 24.226 2.033 280 300 12.511 Canada 39.087 Source: Bureau of Economic Analysis.779 6.274 103.324 3. 2010 2010 Exports ($ Millions) Country Royalties Passenger Other transand license fares portation fees Other private services Total private services Travel All countries 530.534 1.099 Ireland 23.049 France Other countries 9.043 320 1.606 2.282 Switzerland 13.801 3.500 Brazil 16.071 119.661 2.489 19.803 15.333 10.790 152.900 176 3.395 65.272 11.410 25.118 4.566 535 2.931 39.404 1.036 13.751 Brazil 13.181 9.427 United Kingdom 48.850 10.485 United Kingdom 31.535 8.869 25.016 5.607 125.360 3.476 2.

Once this process was complete. services exports.S. and Members of Congress had with respect to the situations in Colombia. Chile. the costs of financing export operations pose an additional barrier for International Trade and Finance | 155 . New Zealand.S. Peru. From day one. trading partners took time.S. Canada. goods exports to Korea by as much as $11 billion. the Obama Administration has placed renewed emphasis on all of these policy domains.government efforts. In November 2009. Support for Small Exporters. Japan. The President moved to address important concerns that the Administration. and Korea. The Obama Administration has worked to restore the Nation’s economic stability and support jobs for more Americans with the expansion of smart. certain stakeholders. Singapore. which was expected to boost annual U. Canada. the Obama Administration has insisted on higher standards for trade agreements. The Trans-Pacific Partnership. Over the past three years. and Mexico in the TPP demonstrates the economic and strategic importance of this initiative to the Asia-Pacific region. Brunei Darussalam. Congress passed the three agreements in quick succession in the fall of 2011. the other countries participating in the negotiations currently include Australia. Free Trade Agreements with Colombia. Of the three agreements. President Obama announced the Administration’s intention to participate in Trans-Pacific Partnership (TPP) negotiations to conclude a free trade agreement with key trading partners in the Asia-Pacific region. responsible trade policy. In addition to the United States. This domestic consultation and further consultations with U. marking the biggest step forward in American trade liberalization in nearly two decades. Panama. Panama. the most economically significant was the Korea–United States free trade agreement. The agreement also included Korean commitments expected to result in considerable expansion of U. and Vietnam. At the November 2011 APEC meeting in Honolulu. and Mexico have formally expressed their interest in joining TPP negotiations. as did negotiations with Congress to ensure that the passage of the free trade agreements was accompanied by a strengthening of America’s Trade Adjustment Assistance program for workers adversely impacted by international competition and by an extension of key trade preference programs. TPP leaders announced the broad outlines of a TPP agreement. While no decision has been made yet by the TPP countries regarding expanding negotiations. In addition to existing negotiating partners. not only addressing the traditional core issues in such agreements but broadening the scope to include regulatory coherence and priorities for small and medium-size enterprises. The agreement aims to set a new and higher standard for regional free trade agreements. Malaysia. interest by Japan. In a world of imperfect financial markets. and Korea.

and support for investment funds to eligible investment projects in developing and emerging markets. where conventional financial institutions often are reluctant or unable to lend. 78 percent of OPIC’s projects. which would have to engage in timeconsuming assessments of the firm. To address these issues the Federal Government has directed the Export-Import Bank of the United States to proactively support small and medium-size firms. has encouraged the bank to substantially increase lending to smaller firms. using guidelines that reflect. the Ex-Im Bank has historically focused much of its lending activity on larger. The Overseas Private Investment Corporation (OPIC). and sector of economic activity.6 6 The Ex-Im Bank and OPIC follow the Small Business Administration’s definition of a small business. international trade when and where private-sector financing was difficult or unreasonably costly to obtain. The bank also authorized a record $2. Given that export opportunities can come to small exporters with significant risks attached.smaller firms. First established in the 1930s to finance U. established exporters.S. 90 percent of such policies for the year. These guidelines are available online at http://www.091 transactions involving small business exporters—88 percent of total authorizations. involved American small and medium-sized businesses. and the country-specific risks involved in a transaction to originate only a small loan with limited value for the lending institution.524 insurance policies to small business exporters.sba. The relatively modest financing needs of small exporters are a further disincentive to private financial institutions. Unless it is obvious to the lender that the firm has excellent prospects for significant export growth. 70 percent of which supported small business. employment levels.pdf.gov/sites/default/files/Size_Standards_Table. 156 | Chapter 5 . extends medium. representing nearly $1 billion in commitments.to long-term financing through direct loans.2 billion in working-capital guarantees. loan guaranties. and brings with it the near certainty of rapid expansion in loan volume. the money a private bank can make on such a transaction is limited relative to the transaction costs themselves. The Obama Administration. among other things. The Ex-Im Bank approved 3. In Fiscal Year 2011. its products. and in Fiscal Year 2010.S. the U. political risk insurance. the bank issued 2. Financial support for the expanding international activities of small business extends beyond the Ex-Im Bank. domestic financial institutions may regard a small firm that is highly dependent on exports as a riskier (and therefore less creditworthy) borrower than one with an exclusively domestic focus. Government’s development finance institution. however. sales. In the same year. the Ex-Im Bank authorized $5 billion—20 percent of its total authorizations—to support small businesses as primary exporters.

These actions add to a series of cases in which the Federal Government has taken action at the WTO to protect U. The Administration is monitoring developments closely to ensure that market realities conform to central government directives. After decades of dispute and more than five years of official proceedings. Trade Representative Ron Kirk hailed the ruling. the Obama Administration is also working to protect American commercial interests under existing trade agreements. the United States gained China’s confirmation through bilateral negotiations that it would not require foreign electric vehicle manufacturers to transfer technology to Chinese enterprises or to establish Chinese brands as a condition for investing and selling in China. the WTO ruled that the EU governments had provided $18 billion in illegal subsidies to Airbus and ordered them removed by the end of the year. electronic payment services. An historic victory came in May 2011. In November 2011. the United States successfully persuaded China to adopt transparent and non-discriminatory technology standards for its emerging smart grid market and to remain technologically neutral with regard to the development of third-generation and future technologies for its telecommunications market.S.” The Administration scored another major victory in January 2012 when the WTO’s Appellate Body upheld a WTO panel ruling condemning Chinese export quotas and duties on certain key industrial raw materials as a violation of China’s WTO commitments. economic interests jeopardized by Chinese policy in areas such as steel products. The United States has filed a WTO case against China.S. including causing Boeing to lose sales and market share in key markets throughout the world. U. saying.” If the European Union fails to comply with the WTO directive.S. International Trade and Finance | 157 . the Obama Administration secured a strong commitment from Chinese President Hu Jintao that China would stop discriminating against U. technologies and intellectual property in its government procurement plans. the United States can seek the right to impose countermeasures. Economic Interests Abroad. One year earlier. challenging the troubling imposition by China of antidumping and countervailing duties against imports of U. and wind power equipment.S. Even as it seeks to open up new markets for American business through new trade agreements. In its ongoing dialogue with China. chicken “broiler products. when the World Trade Organization (WTO) issued a final ruling siding with the United States in its case against the European Union over illegal subsidies to Airbus.S.Promoting U. “The WTO Appellate Body has confirmed without a doubt that Airbus received massive subsidies for more than 40 years and that these subsidies have greatly harmed the United States.

The IMF estimates that sub-Saharan Africa will grow by 5. swine. the President is creating and seeking funding for a new Trade Enforcement Unit. trade relations with the largest economy not yet inside the WTO system. the Obama Administration has laid the basis for a more effective.S. and pork products in the wake of international concern over the H1N1 virus have removed those bans. to increase the likelihood of stopping counterfeit. market. aggressively use subsidized capital to promote their exports. rules-based approach to managing U. meat product exports. five of the 10 fastest-growing economies in the world were in sub-Saharan Africa. In supporting Russia’s WTO accession.Several of America’s trading partners. 158 | Chapter 5 . and developing economies as a whole. firms competing for domestic or third-country sales with matching financial support to counter foreign noncompetitive official financing that fails to observe international best practices. the Administration will actively employ its existing authorities so that the Ex-Im Bank can provide U.5 percent in 2012. pirated. The Administration will be working with Congress to end application of the “Jackson-Vanik” amendment to Russia so that the United States can enjoy all of the benefits of Russia’s membership in the WTO and U. In response. Most of the countries that imposed bans on the import of U. With strong support from the United States. faster than advanced. The President is also proposing to improve trade inspection capabilities of the Customs and Border Patrol and the Food and Drug Administration.S.S. pork. and trade between Africa and the 7 The Jackson-Vanik amendment is a provision in the 1974 Trade Act that denies most favored nation status to certain countries that restrict emigration. including China.S. companies and workers can compete on a level playing field with those of other WTO Members in exporting products and services to Russia. Certain countries. These bans have no scientific basis.7 To further enhance the Federal Government’s ability to protect the Nation’s commercial interests. including China. It was introduced during the Cold War. Russia concluded negotiations to join the WTO in December 2011. which will significantly enhance the Administration’s capabilities to aggressively challenge unfair trade practices under international and domestic trade rules. emerging. or unsafe goods before they enter the U. and appear to offer such export financing on better terms than allowed under current international best practices. have effectively imposed bans on U. Between 2000 and 2010. Fifty-seven countries have removed their avian influenza bans on imports of poultry products from the United States since 2008.S. agreements were reached to resume exports to Chile and Egypt. and the Administration has been trying to bring these bans to an end as soon as possible. In 2011. partly as a response to efforts by the Soviet Union to restrict emigration.S.

As part of a comprehensive tax reform plan. which provides duty-free access to a broad range of exports from 37 eligible sub-Saharan African countries. Agency for International Development uses public-private partnerships to build new markets and has been recognized by the Organisation for Economic Co-operation and Development as the best among its peers with respect to private-sector engagement. and development across the African continent. and the cumulative result of six decades of multilateral. These activities are consistent with the goals of President Obama’s Presidential Policy Directive on Global Development signed in September 2010 that establishes a new model for U. and regional trade International Trade and Finance | 159 . the United States has a strong comparative advantage in services. and. the United States funds technical assistance work at Regional Trade Hubs.S. corporate income tax seeks to enhance American competitiveness. the President has proposed a reduction in the U. The United States also fosters investment by negotiating Bilateral Investment Treaties (BITs) with African countries. the relatively simple nature of many barriers (tariffs and quotas) to such trade. with additional incentives available for firms that manufacture. remains far more closed than the global market for manufactured goods.-Rwanda BIT. corporate income tax rate. bilateral. development efforts. the President addresses longstanding features of the American corporate tax system that encourage some companies to move jobs and production overseas. To help African countries make the most of AGOA’s trade benefits. The Administration’s proposed reform of the U.S. The long history of extensive trade in goods. however.rest of the world increased more than 200 percent. Central to the United States’ economic policy for Africa is the African Growth and Opportunity Act (AGOA). As noted. Tax Reform to Promote American Competitiveness.S. and support continued robust growth of American exports. the U. Senate ratified the U. At the same time. From helping the Port of Cotonou in Benin cut its average customs-clearance time in half to facilitating an American company’s efforts to provide much-needed power to Tanzania’s national grid.S. In 2009. promote investment in the United States.S. In agriculture and other sectors. Other agencies—including OPIC and the Ex-Im Bank—have significantly increased their investment in Africa. The Millennium Challenge Corporation (MCC) is partnering with American and local businesses. Increasing Market Access for Services. conduct research and development. the U. the MCC is investing in infrastructure to expand trade.S. the United States launched BIT negotiations with Mauritius. commerce. in 2011. The global market for services trade. or invest in the capability to produce clean energy products within the borders of the United States.

interest in pushing for greater liberalization of services trade and may be willing partners in this effort. India. While taking existing GATS disciplines and market access commitments into account.liberalization efforts have resulted in a global economy in which formal barriers to trade in manufactured goods are reasonably low. and diplomatic efforts to open services markets are just beginning—but these barriers deprive American firms of critical export opportunities to rapidly emerging markets in an area where their international comparative advantage is the strongest. The size of these barriers may not be surprising—extensive international trade in services is a recent phenomenon. Better access to world-class services raises productivity and living standards in emerging-market economies. The barriers to trade in services are more complex and harder to quantify. Other advanced countries and progressive developing countries are likely to share the U. Schott. 2011). and Wong (2010) review a number of methodologies for quantifying the barriers to trade in services and present new estimates at the country level of the tariff equivalents of these barriers. especially in the advanced industrial countries. and Indonesia is equivalent to a tariff on these imports of more than 60 percent. Upon arriving in these factories. the WTO Agreement on Government Procurement. The President is committed to negotiating effectively and aggressively for increased liberalization of services trade. Hufbauer. Researchers based at Stanford University and the World Bank randomly selected a set of Indian textile factories to receive a complimentary five-month program of consulting services from a leading international firm.S. Recent scholarship demonstrates that services liberalization is in the interest of countries that are importing services as well as those that are exporting services. multiparty agreement open to any country ready to take on high standards and address new issues such as trade in the digital economy. to a lesser degree. but the largest emerging-market economies have not yet been fully engaged in these initiatives. including a new. The Administration has already made progress in bilateral and regional trade agreements. Over the next 160 | Chapter 5 . Their findings suggest that the aggregate level of discrimination against services imports in important emerging markets such as China. the United States is also pursuing additional pathways to services liberalization. The primary multilateral means for seeking greater services market access has been through negotiations pursuant to the General Agreement on Trade in Services (GATS) and. Interesting evidence on this point comes from a randomized experiment in India (Bloom et al. the researchers and consultants found that productivity was hampered by poor management practices. America’s productive exporters of services cannot solve this problem on their own.

The greatest threats to continued progress in these domains lie beyond America’s borders. the “treated” factories had cut defects roughly in half.9 percent of GDP in the third quarter. What is true for India is likely to be true throughout the developing world. the consultants worked with the firms to implement standard management practices proven to have enhanced productivity. Given the magnitude of the improvement.S. When the project ended. recovery. while the control factories saw little change.000 a year.S. Provided Europe’s debt crisis can be resolved. By reducing barriers to trade in services. These are sufficiently large increases that the firms would have made enough money from the consulting projects to be able to pay the consultants commercial rates for their engagement in the projects. laying the foundation for sustained future expansion. why had the firms not adopted these practices earlier? The researchers’ results suggest that informational barriers were the primary factor explaining the lack of adoption.S. trade initiatives. and profitability in the West. output. and the economy has begun to rebalance its sources of growth. the pace of growth in the global economy slowed.S. the current account deficit narrowed to 2. economy can build in the years to come. International Trade and Finance | 161 . substantially reduced inventories. exports have climbed to record high levels. provide a foundation of new opportunities on which the U. The authors calculate that these performance improvements increased profits by about $350. and increased output. America’s export growth and progress toward rebalancing are likely to continue at a brisk pace. U. developing countries can help their own firms move toward the productivity frontier achieved in the West. posing challenges for the U. notably the continued expansion of international trade in services and the interest of major trading partners in new U.five months. Other developments in the global economy. Nevertheless. Conclusion Over the course of 2011.

.

the most in any year since 2005. as households that have borrowed excessively during the boom years bring down their debt during and after the recession. the President has also taken steps to improve K–12 education and to make college more accessible and affordable for middle-class families. Continuing the recovery is essential to putting more Americans back to work.1 million private-sector jobs were added to the economy. long-term trends that predate the recession continue to pose a challenge for American families and businesses. Private employers have now added jobs. the labor market is gradually improving. Sustained privatesector job growth resumed more quickly after the official end of the 2007–09 recession than it did after the two previous recessions (Figure 6-1). on net. Despite the severe damage caused by the recession that began in December 2007. given the depth of the 2007–09 recession. the recovery has not yet resulted in enough new jobs to replace all of those that were lost. 2. In 2011. the President has proposed measures that independent economists predict would create millions of jobs. To make sure that Americans are equipped to compete in the economy of the future. Long-term problems that have been building over several decades pose a further set of challenges for the labor market. But. And job growth from the end of the 2001 recession through 2007 was the weakest for any recovery in more than five decades. 163 . The Great Recession exacerbated these problems. because reductions in consumer spending mean that employers require fewer workers to satisfy customer demand. Inequality was sharply rising and earnings were stagnant for middle-income families for many years before the latest recession. This deleveraging cycle takes time and disrupts the labor market. every month since February 2010. Responding to these challenges.C H A P T E R 6 JOBS AND INCOME: TODAY AND TOMORROW R ecessions caused by financial crises typically cause large declines in aggregate demand. And even as the economy and job market recover.

  actions that should help to mitigate the long-term trend of growing income inequality. Between January 1980 and July 1990. maintained robust job growth.000 net new payroll jobs a month. so too has the number of jobs filled by American workers. 164 | Chapter 6 .000 total jobs and only 50.S.  But this long-term pattern of job growth changed around the turn of the millennium. employment grew by an average of 151. U. between July 1990 and March 2001.     Source:  Department  of  Labor. at a rate of 178.000 payroll jobs a month. from business-cycle peak to business-cycle peak. and even as other developed countries. Against this backdrop of weak employment growth beginning in about 2000.S.  Shading  denotes  recession. it grew even more quickly.  1980ʹ2012   Thousands   1. Jobs and Employment The traditional pattern has been that as both the U. the economy fell into recession in December 2007 and began to shed jobs at the end of 2008 at a rate unprecedented in the postwar era.Figure  6-­1   Monthly  Change  in  Private-­Sector  Employment. Between March 2001 and December 2007. again from business-cycle peak to business-cycle peak. job creation slowed even as productivity growth remained relatively strong. total U.200 900 600 Jan-­12     300 0 -­300 -­600 -­900 Jan-­1980 Jan-­1985 Jan-­1990 Jan-­1995 Jan-­2000 Jan-­2005 Jan-­2010 Note:  The  large  fluctuations  in  private-­sector  employment  in  1983  were  due  to  strike   activity. such as the United Kingdom and Canada. the economy added a monthly average of only 68.000 private-sector jobs. economy and population have grown.  Bureau  of  Labor  Statistics.S.

0 percent in April 2008 to a peak of 10. thus offsetting some of the private-sector job growth. reaching a high of 818. the unemployment rate doubled.0 percent in October 2009 to 8. and Job Creation Act of 2010. Soon after the President signed the American Recovery and Reinvestment Act (Recovery Act) on February 17. the pace of job loss slowed. the U.S.   Source:  Department  of  Labor.During 2008 and 2009.1 million jobs in 2011.000 jobs in January 2009. a rate not seen since 1983 (Figure 6-2).000 jobs a month.7 million jobs since February 2010. including 2.  Bureau  of Labor  Statistics. Jobs and Income: Today and Tomorrow | 165 .  1980ʹ2012 10 8 Jan-­12 6 4 2 0 Jan-­1980 Jan-­1985 Jan-­1990 Jan-­1995 Jan-­2000 Jan-­2005 Jan-­2010 Note:  Shading  denotes  recession. and 218. registering a cumulative gain of 3. with the support provided by the Recovery Act and by the payroll tax cut and unemployment insurance extensions contained in the Tax Relief. The continuing recovery has brought the unemployment rate down from a peak of 10. Nonetheless. however.3 percent in January Percent 12 Figure  6-­2 Unemployment Rate.0 percent in October 2009.000 jobs per month in the last three months (ending in January 2012). The private sector has added jobs in each of the past 23 months. Private-sector job growth has averaged 159. 2009. excluding temporary Census hires. The recession has had a large and continuing negative fiscal impact on State and local governments. from 5.000 jobs per month since February 2010. and they continue to shed workers. the economy lost an average of 361. economy has added jobs in every month since February 2010. Unemployment Insurance Reauthorization. As the recession continued.

President Obama proposed the American Jobs Act to support and speed up the ongoing recovery for American workers and their families. the President’s 2012 State of the Union Address and Fiscal Year 2013 Budget laid out a blueprint for an economy built to last on American manufacturing. as well as by the aging of the workforce. The labor force participation rate fell further in the recession. The pace of recovery has also differed across demographic groups. The unemployment rate for African Americans reached 16. As discussed in Chapter 2. The 0. thereby maintaining a connection to the labor force.6 percentage points for Hispanics and 3. American energy. largely because of increases in the fraction of women in the labor force.2012.000 jobs) and State and local government (-456. transportation. The pace of the recovery has varied across sectors of the economy. and American values. and utilities (+683. notably construction (+43. trade. The unemployment rates for Hispanics and African Americans as of January 2012 are well below their respective peaks—down 2. The Hispanic unemployment rate reached a peak of 13. and manufacturing (+400. skills for American workers. Extended unemployment insurance benefits have encouraged workers who lost their jobs through no fault of their own to keep searching for work. are a continuing concern.000 jobs as of January 2012). That is why.7 percent in March 2010 and then again as recently as August 2011. After trending upward for most of the post-World-War-II period.9 percentage point decline in the unemployment rate that occurred in 2011 is the largest in any calendar year since 1994. many of those who have left the labor force since the beginning of the recession have enrolled in school. first in August 2009 and then again in November 2010. Helping more Americans get back to work more quickly remains the top priority of the Administration’s economic policy. driven by declining participation of Americans between the ages of 16 and 54.1 percentage points for African Americans—but still remain elevated. in September 2011. Trends in the labor force participation rate and in the employmentto-population ratio that pre-date the recession. These same developments have also lowered the employment-to-population ratio.000 jobs).000). Since February 2010. and were exacerbated by the recession. when the private sector began consistently adding jobs. 166 | Chapter 6 . The continued weakness in these two sectors reflects the severity of the financial crisis and the recession’s impact on the housing market and on government revenues. job growth has been strong in industries such as education and health services (+717.000 jobs).1 percent twice. with those sectors most harmed by the financial crisis the slowest to recover. the participation rate has been in a secular decline since the late 1990s. but is still weak in some sectors. More recently.

and N is the number of jobs. labor market over the long run. and some growing and others contracting. each of these values is divided by overall employment in the economy 1 Alternative measures of gross job gains and gross job losses use units of observation other than the firm. C is the set of firms that are either new or have grown in period t. generally a physical location of business activity where goods and services are produced.S. These labor market dynamics have strong cyclical properties that have been very much at work during and since the recession. with new firms entering and others exiting. The dynamic job market is supported by a safety net that helps to protect workers when job transitions do not occur smoothly and that gives entrepreneurs a backstop when they take risks with potentially high payoffs in future productivity.1 Net job growth in a given period is the difference between gross job gains and gross job losses: where and NETt is the net number of jobs created by firms in the economy in period t. D is the set of firms that have either exited or contracted in period t. Jobs and Income: Today and Tomorrow | 167 . such as the establishment. jobs are gained and lost. and gross job losses. Gross job gains are measured as jobs created in new and expanding firms. while gross job losses are measured as jobs that disappear in firms that are contracting or closing. gross job gains. Gt is the amount of gross job gains in the period. To calculate the rates of net job growth. Job Dynamics The job market is dynamic. The importance of the many facets of the safety net is discussed in detail in Chapter 7. These job dynamics are characterized by gross flows of job gains and job losses across firms. Using units smaller than firms leads to higher rates of gross gains and losses because jobs that flow across the units within a firm are counted in the gross measures. i is a firm. Lt is the amount of gross job losses.The Dynamics of Labor Market Trends Underlying the changes in employment is a dynamic process through which firms are born and die. but secular trends are also changing the functioning of the U. and workers transition in and out of employment and between jobs.

168 | Chapter 6 . the rate of job gains in year t=2009 refers to information on jobs gained in firms between March 2008 and March 2009. Whereas. 18. While both large and small firms contribute to gross job gains and losses.8 percent of total private-sector employment in the 1990s and to 15. Between 1980 and 2009 (the most recent year of BDS data). These numbers make clear the importance and contribution of America’s entrepreneurs to the dynamism of the economy. for example.2 percent of overall gross job gains each year were in new firms—mostly small new firms—even though new firms accounted for only 3. startups and other young firms drive the large rates of job gains and losses in small firms. on average. gross job losses were slightly more than 16.1 percent of employment (Data Watch 6-1).2 percent of private-sector jobs in the 1980s were newly created positions in startups or expanding firms. These secular declines also are apparent when one focuses more narrowly on startups. small firms tend to gain and lose jobs disproportionately and to account disproportionately for net job growth. Similarly. Recent research suggests that an important part of the explanation for the disproportionate amount of both gross job gains and gross job losses accounted for by small firms is that they tend to be young. Jarmin. The annual average rates of job gains and losses between 1980 and 2009 mask two important features of heterogeneity across time—secular. approximately 15 percent of jobs in an average year were gone by the next year because firms closed or contracted. on average. So. The rates of both gross gains and gross losses have been declining over time. the rate of gross job gains in period t is:2 Recent work by economists using the Business Dynamic Statistics (BDS) data at the U. 2 The data on U. So.8 percent between 2000 and 2009 (Figure 6-3). for example. approximately 17 percent of all jobs in the private sector in an average year were added in that year at new or expanding firms. Census Bureau demonstrates the tremendous dynamism of private-sector employment in the United States (Haltiwanger.S. Gross job gains from startups accounted.9 percent in the 1990s and then remained largely the same between 2000 and 2009. Between 1980 and 2009.S.averaged between one period and the next period. Put differently. 18. firms capture gross flows over a 12-month period beginning and ending in March. or long-term. gross job gains fell to 16. trends. and Miranda 2010. and cyclical patterns. Haltiwanger 2011).2 percent of overall private-sector employment in the 1980s but fell to 14. for example.

php/bds/bds_home. The initial data are derived from quarterly Internal Revenue Service filings that are compiled by the Census Bureau and augmented with data collected through the Census Bureau Economic Censuses and business surveys. One of the key advances of the LBD is its ability to track the births and deaths of firms. More information on the LBD is available from the Census Bureau at http://www.bls.5 million net new jobs in that year.5 million net new private-sector jobs were gained in 2005. and it will continue to be updated as new data become available. or an establishment that has undergone a change in legal form because of a merger.S. change in ownership. and Miranda (2010) find that about 2. LBD data are available both at the level of the firm—a measurement unit combining all of the economic activity of a business that occurs under common operational control—and at the level of individual establishments—physical locations of economic activity where goods and services are produced. The Bureau of Labor Statistics has produced a separate database. The final LBD data set contains annual information on payroll. the Census Bureau determines whether that new economic entity is a new firm. For example. employment size.S.Data Watch 6-1: Measurement of Startups Research based on a new Census Bureau data set called the Longitudinal Business Database (LBD) has led to new discoveries about the important role that startups play in creating jobs. nonfarm private businesses that paid Federal payroll and income taxes between 1976 and 2009. the Census Bureau is able to identify essentially all new private payroll startups.ces. Jarmin. more information about the BED is available at http://www. and other key economic variables for both firms and establishments. When a new economic entity is reported in the administrative sources used to create the LBD. The creation of the LBD has allowed researchers to study comprehensively the process of private-sector job gains and losses. Haltiwanger. economy. Jobs and Income: Today and Tomorrow | 169 . Firm startups created nearly 3. while all other firms together lost about 1 million jobs on net. or some other similar change. the Business Employment Dynamics (BED). One of the most important findings has been how important startups are to the dynamism of the U.gov/index. The LBD contains annual information on virtually the entire universe of U. which tracks gross quarterly job gains and losses. Through this process.census. industry. a new establishment that is part of an existing firm.gov/bdm.

The rates of gross job gains and losses exhibit not only secular declines but cyclical patterns as well.   1995 2000 2005 2010 for 3. but the unit of observation in the BED consists in most cases of all of the operations of a particular firm located within a given U. gross job losses rose sharply. An EIN is a tax-reporting construct rather than an economic construct.   Source:  Census  Bureau. the rate reached a peak in the 170 | Chapter 6 . The quarter-to-quarter movements shown in Figure 6-4. The Business Employment Dynamics (BED) reports quarterly data on payroll employment at the level of the Employer Identification Number (EIN). In the depths of the recent recession. Gross job gains are procyclical. which are based on BED data through the second quarter of 2011 (the most recent quarter of data available). 1980ʹ2009 Percent  of  total  U.Figure 6-­3 BDS  Estimates  of  Annual  Gross  Job  Gain and  Loss  Rates. state. increasing during recessions and declining in expansions.S. but the decline in gross job gains was even more notable.S.7 percent between 2000 and 2009.6 percent of the overall number of private-sector jobs in the 1980s but for only 2. most important. show a large increase in the rate of gross job losses toward the beginning of the recession. the BED also shows a trend decline in gross gain and loss rates since 2000. increasing in expansions and declining in recessions. Movements in gross job gains and losses in the BED on an annualized basis since its 1990 inception are broadly similar to those in the BDS. whereas gross job losses are countercyclical. An alternative data set produced by the Bureau of Labor Statistics (BLS) offers more frequent and more recent data than the BDS.  private-­sector  jobs 25 20 Gross  jobs  gained 15 10 Gross  jobs  lost 5 0 1980 1985 1990 Note:  Shading  denotes  recession.

  Source:  Department  of  Labor. it is and will remain much younger than the population in the countries of Western Europe. the President last year launched Startup America.   Bureau  of  Labor  Statistics. ^ŽƵƌĐĞ͗ 2006:Q1 2010:Q1 first quarter of 2009. to the extent that aging can explain part of the slowdown in job flows in the United States. population is indeed aging. the underlying reasons for the slowdown and its implications for the future of the U. and international comparisons could be helpful in this regard.Figure 6-­4 BED  Estimates  of Quarterly  Gross  Job  Gain  and  Loss Rates. and research has documented a positive correlation between worker age and job tenure (Davis et al. 2007. Older workers may be less likely to become entrepreneurs.  private-­sector  jobs 14 12 10 Gross  jobs  gained 8 6 Gross  jobs lost 2011:Q2 4 2 0 1990:Q1 1994:Q1 1998:Q1 2002:Q1 Note:  Shading  denotes  recession. 1990ʹ2011 Percent  of  total  U. One possible reason for the slowdown in job reallocation is the aging of the population. other countries can be expected to experience slowdowns as well. So. economy are fast becoming the subject of an active debate. Because of the importance of entrepreneurship to the vitality of the economy. the gains so far have resulted in too few new jobs to accommodate the large number of individuals who lost jobs in the 2007–09 recession. and then returned to approximately the pre-recession trend by the beginning of 2010. But while the U. a national Jobs and Income: Today and Tomorrow | 171 . The BED data also show a precipitous fall in the rate of gross job gains during the recession. and although that decline reversed and gross job gains exceeded gross job losses by the second quarter of 2010. Krueger 2010).S. Further research is needed to better understand the secular trends in job flows in the United States.S.S. Now that researchers have documented the long-term secular slowdown in job gains and losses.

firm hires and separations before the start of the recession in 2007 were notably below the levels observed before the start of the 2001 recession.000 Separations   4.  Bureau  of  Labor  Statistics. Overall.   172 | Chapter 6 Jan-­2009 Jan-­2011 .  2001ʹ2011   Thousands   6.000 Hires   Nov-­11     3.500 5.000 5. On a monthly basis. But the rates of worker flows are larger than the rates of job reallocation: a firm may maintain stable employment (no gross job gains or losses) from one year to the next while having many individual workers come and go from within its employee ranks. Figure  6-­5   Hires  and  Separations.7 million a month and have tended to track each other closely over time. As Figure 6-5 illustrates.     Source:  Department  of  Labor. the net change in employment at a firm must by definition equal the difference between the firm’s hires and separations.campaign to improve the environment for high-growth entrepreneurs by expanding their access to capital and connecting them with mentors. reducing barriers to entrepreneurship. helping the Nation’s veterans start businesses.000 Jan-­2001 Jan-­2003 Jan-­2005 Jan-­2007 Note:  Shading  denotes  recession. As captured since December 2000 in the BLS Job Openings and Labor Turnover Survey. Worker Flows The reallocation of jobs across firms is accompanied by the flows of individual workers between firms and in and out of employment. hires and separations have both averaged more than 4. flows of workers into firms (hires) and out of firms (separations) are large.500 4.500 3. and fostering entrepreneurship in communities.

So while layoffs were increasing over this period. The BLS has been constructing these flows each month since 1990 in a manner that also matches up with the level of reported unemployment. economy fell into recession in December 2007.   1990ʹ2012   Percent   4.  Bureau  of  Labor  Statistics. Perhaps most important over time are the flows into and out of unemployment. Hires and separations both began to rise in the second quarter of 2010. worker flows slowed notably.   Feb-­2010 Jobs and Income: Today and Tomorrow | 173 . with large monthly declines in the number of separations. in any given month three-quarters of the sample members have also been interviewed in the previous month. One can also study flows of workers into and out of employment.5 Outflow  rate Jan-­12     3. unemployment. but it is attributable to a large decline in the frequency of workers quitting their jobs.0 Inflow  rate 3. but both remained below pre-recession levels at the end of 2011.0 1.     Source:  Department  of  Labor.0 2.S. Overall. which can be calculated using the Current Population Survey (CPS). Because of the structure of the CPS. making it possible to use these repeat respondents to follow transitions into and out of unemployment. A decline in separations during a recession may seem counterintuitive. and even more precipitous monthly declines in the number of hires. Figure 6-6 Figure  6-­6   Flows  into  and  out  of  Unemployment  as  Percent  of  the  Labor  Force. the decline in quits swamped the increase in layoffs.As the U. and the labor force. quits are usually a sign of workers leaving jobs voluntarily for better opportunities.5 Feb-­1990 Feb-­1994 Feb-­1998 Feb-­2002 Feb-­2006 Note:  Shading  denotes  recession.5 2. the economy on net was shedding jobs at a very fast pace during the recession because the decline in hiring in absolute numbers was larger than the decline in separations.

the United States has had low rates of income mobility for decades. are more likely to leave the labor force permanently. when they do. Davis. as well as an economic environment in which existing firms have reasons to increase employment. As the recession began. both the increase in the monthly average probability of a worker entering unemployment and the decrease in the monthly average probability of an unemployed worker exiting unemployment have. using alternative methods of calculating unemployment inflows and outflows. increasing the unemployment rate to levels not seen in approximately 30 years. for example. measured as a share of the labor force. and Solon 2009). as well as to the long-term decline in the share of the population that is employed. Faberman.displays the extent of inflows and outflows as a percent of the total labor force for each month from the start of 1990 through January 2012. as in a typical recession. contributed to the observed rise in unemployment (Elsby. the data in Figure 6-6 through the end of 2007 suggest a secular decline in both the inflow and outflow rate. unemployment inflow and outflow rates. 174 | Chapter 6 . Put differently.4 percent of the labor force. the unemployment rate has fallen. Both began to rise steeply. but the inflow rate rose more quickly than the outflow rate. new firms are able to grow and innovate. Because the outflow rate was notably higher than the inflow rate near the end of 2011. each have been over 3 percent. the Administration has pursued and continues to pursue robust policies to foster faster job creation in the short run. both across the career and across generations. And it is still subject to the long-term slower trend in gross job gains and losses. The labor market is still recovering from the cyclical impacts of the recession. Although the BLS labor force flow series goes back only to 1990 and is dominated by strong cyclical movements. and workers can find satisfying employment. Michaels. monthly inflows and outflows from unemployment both stood at approximately 2. A similar decline has also been documented elsewhere (see. the aging of the population may account for some of these secular declines. and Haltiwanger 2006) for years before 1990. because older workers tend to leave jobs less often than younger workers and. Earnings and Income Mobility over the Career and between Generations Although the Nation’s labor market is highly dynamic in terms of worker flows. As with job flows. In the face of these trends. But the declining flows into and out of unemployment also may reflect other forces that have lowered the rates of gross job gains and losses over the past three decades. Since March 2009.

and Song (2010) show that the annual earnings of a man averaged across 11 years early in his working career are highly predictive of his annual earnings averaged across 11 years later in his working career.S.Low rates of income mobility across the career are especially notable for men. Studies based on U. a man in one of the bottom two quintiles of the income distribution early in his lifetime has less than a 10 percent chance of rising to the top quintile 20 years later. In other words. Moreover. Family (or individual) incomes in one generation are also highly correlated with family (or individual) incomes in the next generation. Corak (2011) makes such a comparison and finds that the average 3 IGEs most commonly have been estimated as the regression coefficient resulting from a linear regression of the logarithm of the income (or earnings) of a child on a measure of the logarithm of income (or earnings) of a parent or family.4 means that if one father earned 20 percent more than another over their lifetime. the first father’s son on average would earn 8 percent more than the second father’s son. particularly fluctuations in incomes from year to year. Saez. while Aaronson and Mazumder (2008) present evidence suggesting that it has increased in the past 30 years. None of the available research has suggested a decline in the IGE over time. Data limitations make it difficult to infer whether the IGE or the correlation between parents’ and children’s income has changed significantly over time (Data Watch 6-2). Kopczuk. the lower economic mobility is between the generations.3 These IGE estimates are sensitive to several measurement issues. The high degree of persistence in incomes between generations in the United States is especially noteworthy in the context of cross-country comparisons. the widening of income inequality has meant that it is harder for someone born into the bottom to move to the middle or the top of the income distribution. the children of parents who are poor are more likely than the children of well-off parents to be poor when they grow up. An IGE of 0.6 means that the first father’s son would earn 12 percent more on average than the second father’s son.6. which is defined as the percentage difference in a child’s income associated with a 1 percent difference in the parent’s income. Jobs and Income: Today and Tomorrow | 175 . whose higher rates of labor force attachment make them much less likely than women to have years with zero earnings. For example. data that deal appropriately with these measurement issues suggest that plausible estimates of the average IGE between fathers and sons are between 0.4 and 0. an IGE of 0. That is. Lee and Solon (2009) conclude that the IGE in the United States was fairly stable for cohorts born between 1952 and 1975. A common measure of mobility across generations is the intergenerational elasticity (IGE) of earnings or income. the higher the IGE is. implying that intergenerational mobility has fallen.

probably because he had access to more accurate earnings histories.31) for the United Kingdom.6. and Denmark (0. He finds that the intergenerational elasticity of earnings is around 0. while lower than the IGE for countries such as the United Kingdom (0.17).18).27). is much higher than the IGE for men in countries such as Sweden (0. because in many countries the inconsistent labor force participation of women complicates the estimation of their IGEs. report a somewhat lower IGE (0.47 for men in the United States. tax records could allow researchers to gain a much fuller picture of the evolution of earnings and career outcomes between generations.15). Grusky and Cumberworth (2010) have suggested that. this discussion focuses on IGEs for men. which is larger than had been found in previous studies.69). data limitations have hampered attempts of economists and other social scientists to measure the extent of intergenerational mobility. Researchers interested in intergenerational mobility in the United States most commonly have used one of two nationally representative surveys to assess the relationships between the income and occupations of children and those of their parents—the Panel Study of Income Dynamics or the National Longitudinal Survey. estimated IGE of 0. Neither of these surveys was designed specifically to address questions concerning intergenerational mobility. however.S. Mazumder (2005) has taken a step in this direction. Following the literature.Data Watch 6-2: Intergenerational Mobility One measure of opportunity is the extent to which children grow up to live in better economic and social circumstances than their parents. Figure 6-7 plots the relationship across 13 industrialized countries between the IGE of the earnings of fathers and sons as reported in Corak (2011) 4 One exception is that Jäntti et al. one clear pattern is that countries with more intergenerational mobility also tend to have lower point-in-time income inequality. Norway (0. (2006) also compare IGEs for men’s incomes in some of the same countries and report similar estimates.4 While many factors contribute to cross-country differences in intergenerational mobility. and the lack of precision resulting from the relatively small numbers of people surveyed makes it difficult to discern trends in economic mobility. Finland (0. if organized into an administrative database with strict confidentiality protections. 176 | Chapter 6 . below that of the United States but still well above those in Nordic countries.50) and South Africa (0. While there has been useful research on this topic. using data from the Survey of Income and Program Participation linked to Social Security earnings records to study the relationship between parents’ earnings and the later earnings of their adult sons. information gleaned from U. Jäntti et al.

This robust relationship suggests that at least some of the same mechanisms that drive income inequality also drive intergenerational mobility. for example. The United States appears in the upper right part of Figure 6-7. Higher IGEs along the vertical axis mean less intergenerational mobility. The educational system also may contribute to the pattern in Figure 6-7.1 0.3 Gini  coefficient  (1985)   Source:  Corak  (2011)  and  OECD. Karabarounis. and Figure  6-­7   The  Great  Gatsby  Curve:  Inequality  and  Intergenerational  Mobility   Intergenerational  earnings  elasticity   0. indicating both high inequality and low intergenerational mobility.2 Norway   Japan   New  Zealand   Canada   Denmark   0. Andrews and Leigh 2009.35 Jobs and Income: Today and Tomorrow 0. Corak 2011.and the Gini coefficient of after-tax 1985 income as reported in the OECD statistical database. the finding of a positive relationship between IGE and inequality—a relationship that Krueger (2012) has referred to as “the Great Gatsby Curve”—is robust to alternative choices of countries.2 Finland   0.6 0.25 0.   0.4 Spain   Germany   0. As other research has shown. Research has found a strong negative correlation between spending on public education and IGEs across countries (Ichino. OECD 2010). and year in which income inequality is measured (see.4 | 177 . shown along the horizontal axis of the figure.3 Sweden   0. a rise in the rate of return to schooling can be expected to lead to both a rise in point-in-time income inequality and a decline in intergenerational mobility because educational attainment is positively correlated across generations. higher values mean higher levels of income inequality. is a common measure of income inequality.15 0. For example. intergenerational mobility measures. The Gini coefficient.5 United  Kingdom   Italy     United  States   France   0.

 Bureau of  Labor  Statistics.2 42 40 38 1970 1980 1990 2000 Source:  Department  of  Labor. One indicator of the evolution of income over time is annual real median household income.2 44 42. As discussed later in this chapter. as is typical during recessions and their aftermath. the Administration has taken multiple steps to improve the quality of education and to provide opportunities for all students to earn a postsecondary credential or degree. fell between 2007 and 2010 (the last year for which data are available). Overall Trends in Income and Rising Inequality Irrespective of the persistence in income across generations. This pattern suggests that public investments in supporting children may help to reduce persistent inequality across generations.; CEA  calculations. the rungs on the ladder of the income distribution in the United States have moved farther apart. Similarly.Moretti 2011).3 48 45. and then. which rose in the United States from the late 1960s through the late 1990s. and income growth has been stagnant for the middle class for a decade.   178 | Chapter 6 2010 .6 46 44. the OECD has concluded that educational policies ranging from support for early childhood education to measures that support postsecondary education for students from low-income backgrounds can increase intergenerational income mobility (OECD 2010).3 50 47. Figure  6-­8 Percent  of  Households  with  Annual  Income   within  50  Percent  of  the  Median Percent 52 50. was stagnant in the first part of the 2000s.

provides stark evidence of the rise in inequality. increasingly more income has been concentrated at the top and less at the bottom of the income distribution. Growing dispersion of household incomes. just over 50 percent of households had incomes within 50 percent of the median. Card and DiNardo 2002. The CBO reports that the share of total after-tax household income Jobs and Income: Today and Tomorrow | 179 .  1979ʹ2007   Percent  change   300 278   250 200 150 100 65   50 18   35   28   43   0 Lowest quintile Second quintile Middle quintile Fourth quintile 81st-­99th Top  1  percent percentiles Source:  Congressional  Budget  Office. Katz. but grew by a stunning 278 percent for those in the top 1 percent of the distribution. for example. and Kearney 2008. means that fewer and fewer households have incomes in the middle band of the income distribution. As a result of these divergent growth rates. A report released by the Congressional Budget Office (CBO) in October 2011 examines real growth in after-tax (and transfer) household income from 1979 through 2007 across quintiles and the top 1 percent of the income distribution.Figure  6-­9   Growth  in  Real  After-­Tax  Income. a manifestation of growing dispersion of earnings. that share fell to just over 44 percent in 2000 and to just over 42 percent in 2010. CEA 1997). Autor. In 1970. showing that real after-tax incomes grew by just 18 percent over nearly 30 years for those in the bottom income quintile and rose only somewhat more rapidly for those in the middle 60 percent of the distribution.     Rising income inequality is another major development in the United States economy (see. Figure 6-9. This can be seen clearly in Figure 6-8. Another way to look at changes in the distribution of income is to examine the rates of income growth for households at different income levels. reproducing information from the CBO report.

for the bottom four income quintiles was lower in 2007 than it was in 1979,
and the share for those in the 81st to 99th percentiles was essentially flat.
For the top 1 percent, however, the share more than doubled, from almost 8
percent in 1979 to 17 percent in 2007.
Piketty and Saez (2003, 2010), using data and definitions of income
slightly different from the CBO report, focus on income inequality between
those at various places in the very top of the distribution and the rest of the
population. They find that the share of income prior to taxes and transfers
excluding capital gains going to the earners in the 90–95th percentile of the
distribution barely changed between 1979 and 2010 and that the share of
income going to those in the 95–99th percentiles rose from almost 13 percent to about 16 percent. But the share of income going to the top 1 percent
of earners rose from 8 percent in 1979 to 18 percent in 2007, the highest it
had been since the Roaring Twenties, and it still stood at over 17 percent in
2010 (Figure 6-10).
Rising inequality has important implications in the context of low
rates of intergenerational mobility. As incomes become more unequal,
larger increases in household income are necessary for families to move
from a lower part of the income distribution to a higher part—for example,
from a level of household income that classifies a family as living in poverty
to one that puts it in the middle of the distribution. Low rates of economic
Figure  6-­10  
Share  of  Total  U.S.  Income  Earned  by  Top  1  Percent,  1913±2010  
Percent  of  total  U.S.  income  
20
18

16
14

12
10

8
6
1913
1923
1933
1943
1953
1963
1973
1983
1993
2003
Note:  Total  income  includes  wages  and  salaries  (including  bonuses  and  stock -­option  
exercises),  pensions,  profits,  farm  income,  dividends,  interest,  and  rental  income.  
Source:  Piketty  and  Saez  (2003,  2010);;  authors  provided  an  estimate  for  2010  based  on  
partial  returns.    

180 | Chapter 6

mobility across generations imply that children born in poverty are more
likely to remain in poverty as adults, while children born to higher-income
parents are more likely to have higher incomes as adults. As long as income
inequality is increasing, those adult children will find themselves even
farther away from the middle class than their parents were. Perhaps even
more worrisome, the Great Gatsby curve in Figure 6-7 suggests that a rise in
inequality for the current generation of families could lead to a slowdown in
economic mobility for the next generation.
The confluence of rising inequality and low economic mobility over
the past three decades poses a real threat to the future of the United States as
a land of opportunity. Social and economic mobility across generations are
at risk of declining unless concerted efforts are devoted to providing more
opportunities for those born into lower-income households.

Long-Term Unemployment
The upheaval in the labor market brought on by the recession that
started in late 2007 is primarily a cyclical phenomenon. A major challenge,
especially given the long-term changes in the labor market that were underway even before the recession, is how to prevent these cyclical dislocations
from having permanent effects on workers’ prospects. This means that
pathways for the long-term unemployed to return to the workforce are a
particular priority The protracted high level of unemployment has led to
large numbers of long-term unemployed workers—those who have been
out of work for more than 26 weeks. Currently, 5.5 million workers—more
than two-fifths of all unemployed individuals—have been jobless for more
than 26 weeks, and over 1.8 million have been without a job for more than
two years.
Historically, as depicted in Figure 6-11, the share of the unemployed
that has been unemployed for more than 26 weeks has been quite cyclical,
starting at a relatively low point right before a recession, growing thereafter,
and usually peaking many months into the recovery before gradually declining. Another useful measure of unemployment duration is the median duration—the amount of time that the person in the middle of the distribution
has spent unemployed to date. Typically, this measure has been similarly
cyclical, and as a result of the 2007–09 recession it remains elevated at 21.1
weeks.
A long period of joblessness is obviously first and foremost a serious
hardship for the individuals involved. The loss of income due to unemployment can wreak havoc on households’ finances, often necessitating liquidation of savings. Households with unemployed members are more likely to
fall behind on their bills and to suffer foreclosure or bankruptcy; foreclosures
Jobs and Income: Today and Tomorrow

| 181

Figure  6-­11
Median  Duration  of  Unemployment  and  Long-­Term  Unemployed as  a  
Percent  of  Total  Unemployed,  1980 ʹ2012

Weeks
30

Percent
50

Jan-­12
25

40

30

Long-­term  unemployed  as  a  
percent  of  total  unemployed
(left  axis)

20

15
20
10
10

5

Median  duration  of
unemployment
(right  axis)

0
Jan-­1980 Jan-­1985 Jan-­1990 Jan-­1995 Jan-­2000
Note:  Shading  denotes  recession.  
Source:  Department  of Labor,  Bureau  of  Labor  Statistics.

0
Jan-­2005

Jan-­2010

also can have adverse effects on the prices of neighboring homes. To help
the long-term unemployed keep their homes, the Administration created
a version of the Home Affordable Modification Program (HAMP) for the
unemployed, called HAMP UP, in which unemployed homeowners were
given a three month forbearance period on their mortgage payments. In July
2011, this forbearance period was extended to 12 months.
Income losses associated with job loss can persist even after reemployment. Recent research examined male workers age 50 or younger with
at least three years of tenure who lost their jobs in mass layoffs (defined as
employment decreases of at least 30 percent over two years at their place of
employment) between 1980 and 2005. The researchers concluded that job
displacement led to a loss of 1.7 years of earnings, on average, accumulated
over 20 years. Moreover, job displacement led to an average accumulated
earnings loss of 2.8 years if the job was lost when the unemployment rate was
above 8 percent, but the earnings loss was only half as large—1.4 years—if
the job was lost when the unemployment rate was below 6 percent (Davis
and von Wachter 2011).
In addition to the mortgage forbearance program mentioned above,
the Administration has supported the long-term unemployed by calling
for extended unemployment compensation, which provides much-needed
income to these workers and their families while the recipient searches for
work. As explained in Chapter 7, continued extensions of the Emergency
182 | Chapter 6

Unemployment Compensation and Extended Benefits programs through
2012 are vital to those who remain unemployed. Additionally, the American
Jobs Act proposal for extending unemployment benefits also included significant reforms to the unemployment insurance system designed to speed
the return of benefit recipients to work.
As part of his Fiscal Year 2013 Budget, the President is proposing a $12.5 billion Pathways Back to Work Fund to provide employment
opportunities for vulnerable youth, low-income adults, and the long-term
unemployed, and an expanded community college initiative to support state
and community college partnerships with business to give workers the skills
employers need. The President also is proposing to streamline training and
employment services for dislocated workers, improving access to critical
supports for getting the unemployed back into employment.

Preparing for Tomorrow’s Labor Market
Even as the Administration remains focused on strengthening and
sustaining the recovery from the recession, the President continues to
address the longer-term challenges in the structure of the American economy and labor market. To ensure that American workers are prepared to
meet the evolving needs of employers, the Nation’s education and training
system must provide the workers of tomorrow with the skills they will need
for the jobs of tomorrow. At the same time, jobs and workplaces also must
evolve to enable workers to fulfill family and other nonwork responsibilities
(Box 6-1). This section describes what the jobs of tomorrow are likely to
look like, why educating workers is a cornerstone of economic opportunity
and growth, and how the Administration’s policies are working to prepare
Americans for the jobs of tomorrow.

Education and the Workers of Tomorrow
The rise in wage and income inequality over recent decades is largely
attributable to long-lasting structural changes in the U.S. economy. Among
the changes are technological advances that have increased employer
demand for a relatively more highly educated workforce, a slowdown in
the expansion of educational attainment, and increased competition from
overseas for many lower-paid jobs. Another is a decline in the share of the
workforce covered by collective bargaining agreements and the decline in
the real value of the minimum wage, both of which historically helped protect the wages of lower-paid workers.5
5 Extensive reviews of existing research can be found in Acemoglu and Autor (2011) and Autor
and Katz (1999).

Jobs and Income: Today and Tomorrow

| 183

Box 6-1: Work-Life Balance in the Jobs of Tomorrow
American household life has changed dramatically over the past
half century in ways that have caused many workers to face conflicts
between their work and personal lives. Women are now the majority
recipients of bachelor’s and advanced degrees and compose nearly 50
percent of the workforce. Families rely increasingly on women’s earnings to make ends meet. In addition to managing care of children, both
men and women juggle elder caregiving responsibilities with work. In
2008, approximately 43.5 million Americans served as unpaid caregivers to a family member over the age of 50. Workplace flexibility is also
important for older Americans themselves. In 2011, the first of the baby
boomers turned age 65. Workplace flexibility policies, such as part-time
work or job sharing, facilitate a phased retirement that helps older workers transition slowly out of the workforce, allowing them to take care of
their health needs and maintain their economic security while moving
toward retirement.
Workplace flexibility can be expanded by increasing workers’
control over when, where, and how much they work. These goals can be
achieved through a variety of different arrangements that allow workers
to continue making productive contributions to the workforce while also
attending to family and other responsibilities. Arrangements range from
job sharing, to phased retirement of older workers, to telecommuting.
Workplace flexibility policies not only help employees balance work and
family responsibilities but also can improve employers’ bottom lines. 
As in all business decisions, the critical considerations for employers in adoption of flexible workplace policies are the benefits and costs.
Almost one-third of firms cite costs or limited funds as obstacles to
implementing workplace flexibility arrangements. On the benefit side,
however, as documented in CEA (2010), these practices can reduce
turnover and improve recruitment, increasing the productivity of
an employer’s workforce. Moreover, flexible workplace practices are
associated with improved employee health and decreased absenteeism,
a major cost for employers.  The CEA study estimated that wholesale
adoption of flexible workplace policies could save as much as $15 billion
a year through greater productivity, lower turnover, and reduced absenteeism. Should more firms adopt such practices, the benefits to society,
in the form of reduced traffic, improved employment outcomes, and
more efficient allocation of workers to employers, could be even greater
than the gains to individual firms and workers (Galinsky et al. 2011). 
Although the academic literature has identified numerous benefits
from flexible workplace practices, along a variety of dimensions, the

184 | Chapter 6

adoption rates for these practices differ across industries and employers of different sizes. Goldin and Katz (2011) explored the prevalence
of flexible workplace arrangements across industries and found that,
although these practices are gaining in popularity, some industries lag
behind, in particular the business and financial sectors. Overall, the
CEA study reported that more than half of employers report allowing
some workers to periodically change their starting and quitting times.
However, only 28 percent of full-time workers and 39 percent of parttime workers report actually having flexible work hours. Even if some
employers offer more flexible workplace arrangements, there remains
the concern that their employees may not be taking advantage of those
arrangements because either, in the case of unpaid leave, they cannot
afford to bring home a smaller paycheck, or, in the case of paid leave,
they are afraid to take leave for fear of missing out on advancements or
not being viewed as a “team player.” 
A lack of data has hindered deeper understanding of the benefits
and costs of flexibility, as well as knowledge about who is taking advantage of that flexibility. The largest, most detailed source of data, a survey
of employers, provides information on practices that is now three years
old and does not contain information for the smallest firms. The only
nationally representative data from workers are seven years old and
provide little information on the prevalence of flexible practices. While
the existing evidence has demonstrated a strong connection between
flexibility and productivity, additional research exploring the mechanism through which flexibility influences worker’s job satisfaction and
firms’ profits would better inform policymakers and managers alike.
In the summer of 2012, the results of a module added to the American
Time Use Survey will provide expanded information about workplace
flexibility from the workers’ perspective. The module asks survey
respondents about their access to leave and flexible scheduling, how they
use such policies to balance their work and personal responsibilities, and
whether they fail to take advantage of existing policies because of a fear
of negative consequences. These data will add to the existing knowledge
base on workplace flexibility.  Although the literature is small, the best
available evidence suggests that adoption of more flexible practices can
boost productivity, improve morale, and benefit the U.S. economy—all
while strengthening families. 

Jobs and Income: Today and Tomorrow

| 185

Because these structural changes have shifted demand toward a workforce with relatively more education, a substantial fraction of the overall
increase in wage and income inequality is related to a growing divergence in
earnings between those with more years of education and those with fewer
years of education, as depicted in Figure 6-12.
For example, in 2010, workers with a bachelor’s degree or higher
earned nearly twice as much as those with a high school degree, a premium
that has risen since 1980, when college graduates earned 45 percent more
than high school graduates. In fact, even long before the most recent recession, the average real annual earnings of those with a high school degree or
less fell below the levels of the 1970s.
One important way to help stem the tide of rising inequality, and
potentially to ameliorate the effects of low intergenerational economic
mobility, is to increase the number of workers who obtain postsecondary
education and earn higher wages as a result. For this reason, President
Obama has set the ambitious goal of returning the United States, by 2020, to
the world’s top spot in the share of 25- to 34-year-olds with a college degree.
Increasing the number of workers who obtain postsecondary education is also vital for meeting the changing skill needs of firms. The BLS
Employment Projections Program produces forecasts of employment by
industry, occupation, and education on an approximately biennial basis.
The industry employment forecasts are based on incorporating projections of the size of the labor force into a model of output growth across
U.S. industries. These detailed industry employment forecasts are then
mapped into projections of employment growth by occupation, and then
into forecasts of growth in employment by education group. Beginning
with the newly released projections for 2010–20, the BLS is projecting
employment growth by education group by assigning to each occupation
the typical level of formal education needed to enter the occupation, and
then aggregating by education group the projected employment growth in
the occupations requiring that level of education. As shown in Figure 6-13,
the BLS projects that in the coming years, jobs requiring education beyond
a high school degree will grow by more than the average, while occupations
requiring at most a high school diploma will grow by less than the average.
For example, between 2010 and 2020, employment in jobs that require an
associate’s degree is projected to grow by 18.0 percent, 3.7 percentage points
more than the average projected employment growth of 14.3 percent. Much
of the divergence in employment growth across education groups is driven
by the projected growth of sectors such as health care and education that
intensively utilize workers in occupations that typically require education
beyond a high school diploma.
186 | Chapter 6

Figure  6-­12
Average  Annual  Earnings  by  Worker Education  Level,  1963ʹ2010
Dollars  (2010)
80,000
Bachelor's  degree  or  higher

70,000
60,000

Associate's  degree  or some  college

50,000

High  school  degree

40,000

Less  than  high school

30,000
20,000
1963

1972

1981

1990

1999

2008

Note:  The  sample  includes  workers  aged  25–65  who  worked  at  least  35  hours  a  week  and  
for  at  least  50  weeks  in  the  calendar  year.    Before  1992,  education  groups  are  defined  based  
on  the  highest  grade  of  school  or  year  of  college  completed.  Beginning  in  1992,  groups  are  
defined  based  on  the  highest  degree  or  diploma  earned.  Earnings  are  deflated  using  the  
CPI-­U.  Calculations  are  based  on  survey  data  collected  in  March  of  each  year  and  reflect  
average  wage  and  salary  income  for  the  previous  calendar  year.
Source:    CEA  calculations  using  March  Current  Population  Survey  

Information that tracks the changing skill needs of firms can help
Americans make informed career decisions. In addition to the statistics published by the BLS on existing and projected jobs by industry, occupation, and
education, the potential exists to harness new data sources to gain a deeper
understanding of what skills are in high demand. For example, the more
than 50 million U.S.-based members of LinkedIn, an online professional
networking company, typically provide to LinkedIn their job titles and the
companies they work for, and upon joining, many members also provide
information on their past work history. LinkedIn classifies members’ jobs
by industry and occupation, often at a more detailed level than is available
in government statistics. The resulting information can be used to track
changes over time in the industries and occupations in which LinkedIn’s
members work and to identify emerging sectors and job titles. LinkedIn’s
members are not a nationally representative sample of the U.S. workforce,
but because they tend to work in sectors of the economy that require higher
levels of education, the information embodied in the changing distribution
of the industries and occupations in which members are employed has the
potential to inform the decisions of individuals considering specific educational and career paths.
Jobs and Income: Today and Tomorrow

| 187

Figure  6-­13  
Difference  Between  Projected  Employment  Growth  Rate  by  Education  
and  Average  Projected  Employment  Growth  Rate,  2010-­2020  
Doctoral  or  professional  degree

5.6  

Master's  degree

7.4  

Bachelor's  degree

2.2  

Associate's  degree

3.7  

Postsecondary  non-­degree  award

2.6  

Some  college,  no  degree
High  school  diploma  or  equivalent

3.2  

-­2.1  

Less  than  high  school

-­0.2  
-­10
-­5
0
5
Percent  change  minus  average  percent  change  

10

Source:  Department  of  Labor,  Bureau  of  Labor  Statistics.    

LinkedIn has produced initial tabulations from among its U.S. members of the growth rate of employment in industries and occupations since
2007. These tabulations are for a longitudinal sample of individuals, based
on aggregated historical data from their resumes and other information that
they provide, LinkedIn reports that two of the fastest-growing industries
among their members between 2007 and 2011 were the Internet and oil
and energy; two of the fastest-shrinking industries were newspapers and
construction. Among the fastest-growing occupations were social media
(including jobs titles such as social media manager, social media marketing manager, and social media specialist) and digital technology (including
digital producer, digital product manager, digital strategist, and digital sales
manager); LinkedIn reports that teachers and middle-management positions were among the shrinking occupations.
One of the main drivers of the increasing relative demand for workers with more education and training is the continuing shift toward using
machines or computers to perform the routine tasks once done by workers.
Although the BLS, assuming a continuation of these trends, projects that the
number of manufacturing jobs will decline between 2010 and 2020, the U.S.
manufacturing sector has added more than 400,000 net new jobs since the
beginning of 2010, the first sustained job growth in manufacturing since the
late 1990s.

188 | Chapter 6

established as part of the Recovery Act. however. the President’s FY 2013 Budget proposes a $25 billion teacher stabilization fund. using grant competitions and evaluations to fund promising practices and learn more about what works. and secondary education to increase the number of students who are college-ready when they graduate from high school. the creation of a new Interagency Trade Enforcement Center to challenge unfair trading practices. Had it not been for the combined $40 billion in targeted assistance through the Recovery Act’s State Fiscal Stabilization Fund and the Education Jobs Fund.000 education jobs over the past three years. funding to help catalyze partnerships between universities and industries to develop new technologies for manufacturing products and processes. Meeting the President’s college completion goal for 25. A key part of this effort has been Race to the Top grants.000 teacher job-years. These measures include initiatives to help develop and produce advanced technologies.Some of the recent growth in manufacturing jobs is the direct result of firms that are choosing to produce goods in the United States rather than using overseas labor. Teachers in the Nation’s public schools are crucial to preparing children for the jobs of tomorrow. The Administration also has made improving the quality of education a priority and has taken an innovative approach. many State and local governments were forced to make cuts. from early childhood education through high school. ensuring clean energy technologies that will fuel the 21st century economy are built in the United States. the cuts would have been worse: these programs provided the resources to support 420. Competitive grants have been awarded to states to undertake innovative reform in four areas of K–12 education: implementing rigorous Jobs and Income: Today and Tomorrow | 189 . Given the continued need to prevent teacher layoffs and to rehire many of the teachers who lost their jobs during the recession. the President has proposed measures to revitalize the manufacturing sector. and tax incentives to promote job growth in communities hard-hit by factory closings. it is essential to invest in the American workforce and to increase the number of young people who attain a college degree.to 34-year-olds requires investments in early. In addition. Increasing Educational Attainment To prepare for the jobs of tomorrow. During the depths of the recession. The Administration is supporting this “insourcing” with new tax proposals that eliminate tax advantages for moving jobs overseas and reward companies that choose to invest in or bring jobs back to the United States. primary. Meeting the goal also requires policies and programs that make college more affordable and accessible. resulting in the loss of more than 200.

validate. by increasing funding by $2. and turning around the lowest-performing schools. The Early Learning Challenge grants complement the Administration’s major investments in improving a cornerstone of early childhood education. the Department of Health and Human Services has begun implementing new regulations that. close the achievement gap. and scale up promising strategies and interventions that raise overall student achievement. and create age-appropriate curricula and assessment systems. by nearly doubling the number of children and families served by Early Head Start. develop strategies for families and parents to assess the quality of early learning programs. the Head Start and Early Head Start programs. “What kind of governmental action is justified…? The most obvious is to require that each child receive a minimum amount of schooling of a specified kind” (Friedman and Friedman 1962). As with the K–12 Race to the Top competition. using data to improve instruction and decisionmaking. In addition to Race to the Top. Race to the Top grants have catalyzed widespread reform even in states that did not win an award. economists Milton and Rose Friedman wrote. leads to higher earnings when those students become adults. The President has committed to continued investments in America’s education system. and improve outcomes for high-need students. require current grantees that do not meet quality benchmarks to compete for continued funding. In view of the positive externalities from schooling. The President’s 2012 State of the Union Address challenged all states to do what 21 states have already done: require all students to graduate from high school or stay in school until age 18. The Early Learning Challenge fund announced nine state grant winners in December 2011. and by taking key steps to increase Head Start Center program quality and accountability. The Promise Neighborhoods initiative supports cradle-to-career wraparound services to improve educational outcomes for students in distressed highpoverty neighborhoods. Notably. Raising the compulsory schooling age increases average educational attainment and. although not all proposals were funded. In 2011. for the first time. Beyond making investments to help all students prepare 190 | Chapter 6 .1 billion in two years through the Recovery Act. Race to the Top funds were also used for Early Learning Challenge grants to promote evidence-based evaluation of programs. for those induced to stay in school longer. The Investing in Innovation Fund supports projects in K–12 education that test. the Administration has funded other important innovations in education. recruiting and retaining effective teachers and principals.standards and assessments. the framework of providing competitive grants to states to formulate their own solutions focused local conversations on education reform.

for college, the Administration is working to make college affordable for
American families. In recent years, published college tuitions have risen
sharply, posing a threat to the Nation’s growing need for workers with
college-level skills. The Administration has made college accessibility and
affordability a top priority. Through the Recovery Act and the Health Care
and Education Reconciliation Act passed in 2010, the Administration raised
the maximum Pell Grant award from $4,731 in 2008 to $5,550 in 2010, and
the FY 2013 Budget calls for the maximum to increase to $5,635 for the
2013–14 school year. Some 8.1 million college students received an average
of $3,700 in Pell Grants in 2009–10. These figures are up sharply from the
year before President Obama took office, when 5.5 million college students
received an average of $2,650 apiece in Pell aid, and the President remains
committed to protecting these historic increases in Pell Grant awards.
In addition, the American Opportunity Tax Credit (AOTC), established through the Recovery Act, provides up to $2,500 a year for college
tuition and related expenses for American families. Compared with the
Hope Scholarship that it largely replaces, the AOTC offers a higher maximum benefit; can be claimed for up to four, rather than only two, years of
undergraduate education; has a higher income eligibility cutoff, making the
credit available to more middle-class families; and is partially refundable,
thereby also reaching lower-income families. This credit is estimated to have
benefited 9.4 million students and their families in 2011. In December 2010,
the President signed an extension of the AOTC through the end of 2012, and
his FY 2013 Budget request proposes to make the AOTC permanent.
Data from the College Board (2011) demonstrate the effectiveness
of these Administration initiatives to keep college affordable (see also CEA
2011). The estimated average net price for full-time students attending public four-year institutions increased by only about $60 between 2007–08 and
2011–12, and the estimated average net price for full-time students attending public two-year and private nonprofit four-year institutions actually fell.
To build on the successes of Pell expansions and the AOTC as well as
lessons from K–12 education reform, the President has proposed a Race to
the Top for College Completion and Affordability to make public colleges
more affordable and a better value and to drive reforms that will help more
students complete their degrees on time. The FY 2013 Budget also proposes
reforms to the distribution of campus based-aid to reward colleges that are
serving low-income students, setting tuitions responsibly, and offering a
quality education that prepares students to obtain employment and repay
their loans. Finally, the Budget proposes a new First in the World Fund that
introduces an evidence-based framework, modeled after the Investing in
Innovation initiative, to develop, validate, and scale up effective approaches
Jobs and Income: Today and Tomorrow

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in higher education. (For a discussion of financing the cost of college, see
Economics Applications Box 6-1.)

Federally Supported Job Training
The education of workers does not end when they complete formal
schooling and enter the labor market. As the economy evolves, workers
often need to develop new skills to meet the changing demands of firms.
In many cases, firms partner with their workers to help them acquire new
skills, but for workers who have lost their jobs or are seeking to change fields
or careers, this option may not be available. Providing such workers with
opportunities for training is especially important in today’s economy given
the continued high rates of unemployment that are the direct result of the
recession, and it will remain important in ensuring a skilled workforce well
into the future.
The Federal Government funds two main training programs
for adults—the Trade Adjustment Assistance (TAA) program and the
Workforce Investment Act (WIA) formula grant program. The WIA Adult
and Dislocated Programs have by far the largest reach, serving 8.6 million
participants in 2010 (the most recent year for which data are available) at
a total annual cost of $3.8 billion.6 Created in 1998, the WIA system provides reemployment and training services to adults who are economically
disadvantaged and to workers who have been displaced from their jobs.
Importantly, WIA moved the design and management of job training programs to the local level by creating “one-stop” employment centers where
job seekers can access all employment services of the Department of Labor.
WIA provides both short-term services, including job search assistance and
basic skills assessments, and longer-term services that involve more substantial career counseling as well as training services. Program participants work
with a case worker to choose the menu of services that best meets their needs,
although limited funds mean not all participants have access to all services
deemed appropriate. Research suggests that the average WIA participant
benefits from the program, although the quality of the services provided is
somewhat uneven. One recent study found that, on average, WIA training
programs for adults boosted employment and earnings, although there was
substantial variation across states and across participants depending on
which WIA program they were in and what kind of services they received
(Heinrich, Mueser, and Troske 2008). Growing evidence from studies of
state programs, particularly studies that track participants for a longer
6 Other smaller programs serving many fewer participants include the Employment Services
Program and the Adult Basic Education Program. In addition, WIA also has a small program
that serves economically disadvantaged youth.

192 | Chapter 6

Economics Application Box 6-1: Calculating the Cost of College
The decision to attend college is one of life’s most important
decisions. Individuals with a college degree earn substantially more
throughout their working lives than otherwise similar non-degree holders, on average, but the dollar costs of college can be high and many students accumulate substantial debt. In addition, there is an “opportunity
cost” of college—students are unable to work for pay while performing
school-related tasks.
One key piece of information that a prospective student should
have is the actual dollar price of college that the student is likely to
pay. The published costs of a year of college do not tell the full story.
Many students receive Federal assistance, and individual colleges and
universities often have their own need-based aid programs, as well as
merit scholarships.
The Department of Education has two particularly useful tools for
prospective college students who would like to understand better what
they are likely to pay in tuition, room and board, expenses, and fees. 
While the exact financial aid available to any particular student depends
on a number of factors including household size, household income, and
asset net worth, the Department of Education’s FAFSA4caster (http://
fafsa4caster.ed.gov/) can help students learn how much aid might be
available. Using the College Navigator tool (https://nces.ed.gov/collegenavigator/), a prospective college student can learn how Federal, state
and local, and institutional aid affect net prices at specific colleges. 
A menu-driven format allows a prospective student to select a college or set of colleges (say, by geography or type of degree) and discover
the average net price paid by students of various income levels at each
college on the prospective student’s list. The average net prices across
schools can vary widely and can deviate substantially from the published
costs. For example, information from the College Calculator shows that,
for households with income between $48,000 and $75,000, the average
annual cost of attending one of the top ten national universities (as
ranked by U.S. News and World Report) in 2009–10 was $52,796. The
average net price for those who received aid at one of those institutions, however, was a substantially lower $9,340. Meanwhile, large state
schools with much lower published costs than the private universities
can have higher net costs. For households in the $48,000–$75,000
income range that received aid, the average annual net cost (including
the costs of living on campus) in 2009–10 at the top ten largest public
universities was $13,486.

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period of time, shows that training for adults can have large positive effects
on earnings. Combining classroom learning with more hands-on training
usually has led to the largest and most lasting impacts (Hotz, Imbens, and
Klerman 2006; Dyke et al. 2006).
The Trade Adjustment Assistance program was established in 1963
and has undergone numerous changes since its inception, but its basic purpose remains to provide training to workers displaced as the result of foreign
competition. Eligible workers receive the same kinds of reemployment and
training services offered to WIA participants, but more generous funding
allows them to receive training for a longer period of time. Moreover, TAA
provides income supplements to regular unemployment insurance benefits
as well as an allowance for relocation. If the displaced worker is over 50 years
old and finds a new job paying less than $50,000 a year, TAA also provides
the worker the option to receive wage insurance in the amount of half the
difference between his or her old and new wage (up to a cap of $10,000) for
up to two years.
Recognizing the importance of job training to American workers
and their families, the President has proposed a major initiative to provide
workers with the tools and skills they need to find new jobs—by forging new
partnerships between community colleges and businesses to train 2 million
skilled workers and by streamlining access to training and employment
services for dislocated workers.
The current system does not treat all workers who were dislocated
because of economic shifts equally. As noted above, workers in tradeimpacted industries are eligible for extensive income support, training, and
reemployment services under the TAA, while those who lose their jobs for
other reasons receive less generous assistance. In this increasingly global
economy, it is difficult to distinguish between trade, technology, outsourcing, consumer trends, and other economic shifts that cause displacement.
The President believes that dislocated workers should be able to access
a single program, visit a single location or go to a single web site to find
information about and assistance with job and training opportunities in
their community. Ensuring that displaced workers have the information and
training they need to successfully return to work is important not only for
those who have lost their jobs as a result of the 2007–09 recession, but also
for those who will be in need of these services in the future.

194 | Chapter 6

Conclusion
The 2007–09 recession severely disrupted a labor market that was
already under stress from decades of rising inequality, stagnant middleclass incomes, and weak job growth in the 2001–07 recovery period. The
job market has been recovering gradually since the end of the recession,
and the Administration continues to make strengthening and sustaining
the recovery in the job market a top priority. The policies proposed by the
Administration will promote continued economic growth and job creation
by supporting aggregate demand through an extension of the 2 percentage
point payroll tax cut, the continuation of extended unemployment insurance
benefits, investments in infrastructure, and assistance to states and localities
to retain school teachers and first responders. Investments in expanded
reemployment services and training for low-skilled and displaced workers
will help get Americans back to work. And the President’s proposals to
invest in elementary and secondary education and to make college more
affordable will lay the foundation for a stronger economy in the future.

Jobs and Income: Today and Tomorrow

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C H A P T E R

7

PRESERVING AND MODERNIZING
THE SAFETY NET

T

oday’s dynamic, global economy, driven by rapid technological change,
offers abundant benefits and opportunities—but also entails many risks.
The Great Recession has made clearer than ever that a strong and flexible
economy requires a robust safety net to protect families against major risks
and to reduce the likelihood that temporary economic shocks will inflict
permanent harm on families and the economy.
In the first weeks after President Obama was inaugurated, the
President and the Congress enacted policies to expand and strengthen
the safety net in response to the ongoing economic crisis. The American
Recovery and Reinvestment Act of 2009 (the Recovery Act) provided
increased funding for a number of key safety net programs, including
unemployment insurance (UI), Temporary Assistance for Needy Families
(TANF), Medicaid, and the Earned Income Tax Credit (EITC). These and
other safety net programs have been critical in cushioning American families from the effects of the Great Recession and in stabilizing the economy
by supporting aggregate demand.
One way to gauge the impact of the safety net is to consider the number of American families that would have been in poverty were it not for
the support provided by specific programs. These effects are significant. In
2010, the official poverty rate was 15.1 percent, which translates to roughly
46 million people living in poverty. According to U.S. Census Bureau estimates, were it not for unemployment insurance benefits, 3.2 million more
Americans would have been in poverty in 2010. This figure includes about
2.3 million nonelderly adults, 900,000 children, and 100,000 adults age 65
and older. Among families participating in the program, the receipt of UI
benefits has the effect of cutting the poverty rate roughly in half (Gabe and
Whittaker 2011).

197

Data Watch 7-1: The Census Bureau’s Supplemental Poverty Measure
The official poverty measure was developed in the 1960s. According
to this measure, a family is considered to be poor if its before-tax income
falls below a “poverty line” that varies according to family size and
composition.
In 2011, the Census Bureau released an alternative to the official
poverty measure that presents a more complete picture of poverty and of
the effects of policies to support low-income families. This Supplemental
Poverty Measure (SPM), developed early in the Obama Administration,
is based on an approach recommended in 1995 by the National Academy
of Sciences. Like the official poverty measure, the supplemental measure
compares the resources available to a household with a threshold level of
income that takes into account household composition. It differs from
the official measure, however, both in how it calculates resources and in
how it sets the thresholds. The supplemental measure adds in-kind assistance such as nutritional assistance and subsidized housing to household
resources and subtracts necessary expenses such as taxes, child care, and
other work-related expenses, as well as medical out-of-pocket costs. Its
thresholds are calculated differently than those for the official poverty
line, and they reflect geographic differences in housing costs.
Overall, 16.0 percent of all Americans were estimated to be in
poverty in 2010 according to the supplemental measure, compared with
15.2 percent using the official methodology.a Differences between the
two measures vary across demographic groups. For example, because
they disproportionately benefit from programs like the Earned Income
Tax Credit (EITC) and the Supplemental Nutrition Assistance Program
(SNAP), children are more likely to be in poverty according to the official measure, which does not account for support from these programs.
By contrast, the poverty rate for elderly Americans is higher according
to the supplemental measure, since unlike the official measure, it subtracts out-of-pocket medical expenses from income.
The supplemental poverty measure allows researchers to isolate
more accurately the effects of a specific policy, source of income, or
category of expense on the prevalence of poverty. Among the programs
studied by the Census Bureau, the EITC has the largest antipoverty
effect; according to the supplemental measure, in the absence of the
tax credit, an additional 6.1 million people would have been in poverty
in 2010. Accounting for medical out-of-pocket expenses in the supplemental measure, on the other hand, moved 10 million individuals into
poverty in 2010.
a This official estimate differs from the usual published rate (of 15.1 percent) as
unrelated individuals under 15 years of age are included in the universe.

198 | Chapter 7

The official definition of poverty does not account for the effect of
taxes paid and tax credits, such as the Earned Income Tax Credit. Nor does
it incorporate the value of in-kind benefits. As a result, the official measure
does not reflect the benefit that American families receive from the EITC
or important safety net programs, such as the Supplemental Nutrition
Assistance Program (SNAP), on the official poverty rate. However, such a
calculation is possible using an alternative measure of poverty, known as the
Supplemental Poverty Measure (Data Watch 7-1). Using the supplemental
measure, the Census Bureau estimated that in the absence of the EITC
another 6.1 million Americans, nearly half of them children, would have
been in poverty in 2010. In that same year, SNAP benefits lifted 2.9 million
adults and 2.2 million children out of poverty. Considered all together, it is
estimated that the social insurance and means-tested transfer programs that
make up the safety net reduce the number of Americans falling below the
poverty line by more than half (Ziliak 2011).
Safety net programs can improve economic efficiency by supplementing private markets if they fail to provide adequate insurance against major
economic risks. A fundamental market failure common to both insurance
and annuity markets is adverse selection, which arises when consumers
know more than insurers about their own risk—their expected medical
claims, their likelihood of becoming unemployed, or their expected longevity (Rothschild and Stiglitz 1976). If insurance or annuity contracts are
priced according to the average risk in a population, coverage will be attractive to those who know that they are at high risk and unattractive to those
who know that they are at low risk. To the extent that high-risk consumers
are more likely to purchase insurance, the cost of coverage will rise, which
in turn will make coverage even less attractive to their low-risk counterparts.
The gravity of the adverse selection problem will vary across types of insurance and, for a given type, across market segments. Some types of insurance,
such as unemployment insurance, have virtually no private market. Private
health insurance and annuity markets exist, though not without substantial
support from tax and regulatory policies; even with this support, coverage
remains costly and incomplete.
In addition to addressing specific types of market failure, a strong
safety net can promote growth and entrepreneurship. By providing a basic
level of security, well-designed safety net programs help create an environment that encourages people to engage in value-creating activities such as
changing jobs or starting a new business. A strong safety net is especially
important in a global economy in which international trade and financial
integration can bring both substantial benefits and increased risk. Robust
cross-country evidence finds that economies that have stronger safety nets
Preserving and Modernizing the Safety Net

| 199

with the costs normally shared between the Federal Government and states.also tend to pursue more efficient economic policies (Rodrik 1998). In each instance since the 1970s. As the labor market continued to deteriorate. Unemployment Insurance Unemployment insurance has long been an essential component of the safety net for workers who have lost a job through no fault of their own. Congress enacted the Emergency Unemployment Compensation (EUC) Program that added 13 weeks of Federally funded UI benefits. and the early 2000s. This chapter provides an overview of the key components of the safety net in the United States. and once each during the early 1980s. Safety net programs also protect workers and their families from the labor market disruptions that can arise from technological change and other sources of fluctuation in demand. In the recent period of high unemployment. In June 2008. Benefits are determined as a function of past wages. on average UI benefits replace roughly half of a recipient’s lost earnings. almost 10 percent of households received UI benefits—and that share is expected to fall back toward the pre-recession average of about 4 percent as the economy recovers. the basic UI program and emergency extensions have provided critical support for millions of American families. Historically the Federal Government has funded benefits for extended periods while the economy recovers from a serious downturn. Although key program parameters vary across states. in reaction to continued weakness in the labor market. up to a cap. During normal economic times. safety net programs can be an important component of automatic stabilizers—providing expansions in aggregate demand that help counteract the weakening of the economy during economic downturns. extended benefits (EB) are available to workers who have exhausted regular UI benefits. An effective and efficient safety net must adapt and evolve in response to changes in technology and economic conditions. once during the 1960s. During periods of high unemployment. the 1990s. In 2010. usually multiple times. emphasizing recent policy developments and proposals to keep the nation’s safety net strong. Unemployment insurance is a joint Federal-state program that covers nearly all civilian workers. twice during the 1970s. In 2011. workers and employers contribute to state systems that pay benefits to unemployed workers for up to 26 weeks. Finally. Congress extended the program 200 | Chapter 7 . It did so once during the 1950s. extended benefits have been reauthorized. the average weekly benefit was roughly $300.

and Bender 2012). economists have interpreted the relationship between UI and duration in the context of a worker’s choice between work and leisure. These benefits must be weighed against the cost of longer spells of unemployment potentially induced by the availability of UI—although in the current environment. is that UI benefits allow workers to meet their basic needs while they search for a job that is a good match for their talents (Chetty 2008). Economic research indicates that this consumption-smoothing effect is important. According to one study. The empirical research literature on the relationship between UI benefits and unemployment duration is sizable. in the absence of UI. An alternative view. More recent work has shown that it is important to distinguish among reasons why UI increases the duration of unemployment. Recent research suggests that UI benefits have small effects on unemployment duration even when the economy is strong (Card and Levine 2000). Together these policies allow workers in high-unemployment states to qualify for up to 99 weeks of benefits.for workers in the hardest-hit states several times. and any negative effects on worker search effort will be less important because of the scarcity of jobs (Kroft and Notowidigdo 2011. while a family receiving UI benefits spends only 7 percent less on food (Gruber 1997). research suggests that the recent expansion of extended and emergency benefits has had a minimal effect on the duration of unemployment spells and Preserving and Modernizing the Safety Net | 201 . In periods of high unemployment. Theoretical models of labor supply and job search predict that unemployed workers covered by more generous UI systems can take longer to find a new job (see. Congress provided full Federal funding of extended jobless benefits. von Wachter. UI benefits mitigate the impact of the recession on the broader economy. and greater employment stability (which reduces employers’ hiring costs). In addition to helping families whose income has been reduced due to job loss. by providing income to families that they can spend. Schmieder. given that a large fraction of unemployed workers have limited assets. for example. a typical family whose household head becomes unemployed lowers spending on food by 22 percent. Better matches generally translate to higher wages (leading to higher tax revenues). increased job satisfaction. starting in February 2009. In addition. Consistent with this premise. Traditionally. Mortensen 1977). any effect on spell length is likely to be comparatively small. the consumption-smoothing benefit of UI will be especially valuable to workers. assuming that UI reduces the effort devoted to job search. The Economics of Unemployment Insurance Unemployment insurance benefits enable workers to minimize disruptions in spending caused by unanticipated income shocks (Baily 1978).

Households that received UI benefits in 2010 had a median income of $55.1 percent in 2007 to 9.6 percent in 2010. they generate partially offsetting income and payroll tax revenues for the Federal Government and help state and local budgets by increasing sales tax revenues. which is only slightly less than the median income of working households that did not receive UI. it has done so not by reducing the probability that unemployed workers look for and find jobs. without the income support provided by these 1 Because previous research suggests that recipients tend to understate the amount of unemployment benefits they receive (Meyer. Mok.000 the previous year. UI lifts millions of families out of poverty. 202 | Chapter 7 . because a large share of benefits flows to middle-income workers.the unemployment rate (Farber and Valletta 2011. these figures can be seen as lower-bound estimates of the effect of UI on household income.1 In addition to providing income insurance to families of unemployed workers. This finding is important in light of evidence suggesting that during periods of high unemployment. Since unemployed workers tend to spend rather than save their benefits. these antipoverty effects understate the economic impact of the program on participants. Rothstein 2011.400 to $8. to the extent that the extension of benefits has affected the measured unemployment rate. but by reducing the number of unemployed workers who have given up on searching for a new job (Rothstein 2011). Over the same period. and Sullivan 2009). the UI system helps the economy as a whole (Auerbach and Feenberg 2000). the average annual amount received by households benefiting from UI rose from $4. which leads to a further decline in economic activity. Recent Trends in UI Receipt and Its Effect on Household Income The share of households receiving UI rose from 4. Moreover. As noted. the impact on aggregate demand is fairly immediate. However. In addition. Daly et al. 2012). UI payments represented 23 percent of household income in 2010. Unemployment insurance is an automatic stabilizer that leans against the negative cycle of increased unemployment leading to reduced consumption. This money was crucial to keeping many families in their homes and able to pay other household expenses. Among all recipients. mainly because of longer duration of benefit receipt but also because of the extra $25 in weekly benefits provided through FY 2010 by the Recovery Act. The share of income represented by UI ranged from 15 percent for multiple-earner households without children to almost 36 percent for households with a single worker and no children (Figure 7-1).340. Because of the way that the emergency and extended benefits programs increase economic activity. many older workers who exhaust their UI benefits end up applying for Social Security Disability Insurance (Rutledge 2011).

the Congressional Budget Office notes that extending UI benefits is the most timely and cost-effective policy for increasing economic activity and employment (CBO 2011). job search support. and other assistance to help ease what can be a difficult transition. Research based on data from the early 1980s suggests that at that time 60 percent of UI spells ended with the worker being recalled to his or her original job (Corson and Nicholson 1983. Today. but they also need training. Thus.   programs. Originally. At its inception.Figure  7-­1   Share  of  Household  Income  from  Unemployment  Insurance  among   Recipients  in  2010. the UI system allowed for income smoothing for workers who would ultimately return to their old job or one like it.    by  Household  Type     Percent   40 34   35 36   30 25 23   20 15   15   15 10 5 0 Total Sole  earners Sole  earners Multiple  earners Multiple  earners with  children without  children with  children without  children Source:  Current  Population  Survey. workers today need income support while they are searching for a new job. In many cases. Policy Innovations The U. workers receiving UI benefits have been dislocated as the result of structural changes in the economy and must find a new industry or occupation. For these reasons. wages in the new jobs these workers find are significantly lower than their former wages. temporary layoffs are less common.S. most covered workers were employed in manufacturing. Preserving and Modernizing the Safety Net | 203 . increasingly. Katz and Meyer 1991).  Annual  Social  and  Economic  Supplement. more families would draw on other public programs. unemployment insurance system dates to the Great Depression of the 1930s.

and providing additional benefits for households with more dependents. Twenty-four states now have work-sharing programs. another important policy goal is to reduce the number of workers who are laid off in the first place. 2003). The UI Modernization Act made $7 billion available to states that made reforms to their UI programs. Research suggests that these services can lower program costs by reducing spells of UI receipt and eliminating payments to ineligible individuals (Black et al. 204 | Chapter 7 . Face-to-face contacts also provide an opportunity to assess recipients’ eligibility for UI benefits. workers whose hours are reduced in lieu of temporary layoffs receive partial UI benefits while remaining on the job and keeping their skills sharp. the Administration has proposed requiring states to provide reemployment services. allowing workers to continue receiving UI for an additional six months if in an approved training program. These small incentive payments resulted in 36 states changing their UI laws. work-sharing makes it easier and less costly for employers to scale up production when orders increase. Under a work-sharing arrangement. Although most UI policy innovations target workers who have already lost their jobs. As a part of this initiative. providing UI benefits to those who left their jobs for certain compelling family reasons. and assistance in identifying helpful resources to EUC recipients to speed their return to work. By allowing employers to retain skilled workers at reduced hours rather than laying them off. The American Jobs Act included the Reemployment NOW program. This made it more likely that recent labor market entrants would meet the minimum earnings threshold for UI eligibility. States could receive the other part of their apportioned payment by adopting two of the following policies: allowing workers who were employed part-time previously to continue receiving UI while looking for part-time work. Workers who have been laid off need help finding a new job.The first step to modernize the unemployment insurance program was taken in the UI Modernization Act. a set of reforms to help UI claimants get back to work more quickly. in the American Jobs Act the President called for further steps to improve the unemployment insurance program and expand reemployment services and job training. Building on these reforms. such as career and job search counseling. and has made these reforms a part of the FY 2013 Budget proposal. States could receive a part of the incentive payment for using the most recent quarter as a part of the base period of earnings on which UI eligibility and benefit amounts are determined. One promising initiative is work-sharing. President Obama proposed incentives to help expand the program to more states. skills assessments. The FY 2013 Budget continues this support. and in the American Jobs Act. a part of the Recovery Act.

With Reemployment NOW funds. Finally. sustaining. which would allow EUC recipients to get short-term work-based experience that helps them maintain or enhance their skills. A recent study found that GATE had a positive effect on new business starts for unemployed participants and higher total earnings after five years than a comparison group (Michaelides and Benus 2010). low-income adults and the long-term unemployed. entrepreneurship training would be facilitated through One-Stop Centers in collaboration with the Small Business Administration. private employers would be able to take on EUC recipients for up to 38 hours a week for a trial period of up to eight weeks with the workers receiving compensation through the EUC program. all program participants would be covered by workers’ compensation and be guaranteed at least the minimum wage. to support state creativity and flexibility.Because entrepreneurship is key to a dynamic economy. Under this program. providing a universal core set of services to serve all dislocated workers. a modern UI system should make it easier for displaced workers to start their own businesses. For jobless workers seeking to change occupations. In addition to these efforts that build upon the existing Federallyfinanced unemployment compensation system to help with getting the long-term unemployed back to work. states would be permitted to use Reemployment NOW funds to implement their own innovative strategies for connecting the longterm unemployed to employment opportunities. Seven states already permit a similar use of unemployment insurance benefits. The Administration has proposed allowing states to use Reemployment NOW funds to expand Self-Employment Assistance programs that pay UI benefits to recipients who are working full-time to establish a new business. and introducing a new Pathways Back to Work fund to support employment opportunities for low-income youth. provided training and one-onone counseling to anyone interested in creating. Growing America Through Entrepreneurship (Project GATE). Preserving and Modernizing the Safety Net | 205 . or expanding a small business. the President’s Budget includes other important and complementary initiatives that will contribute to the goal of ensuring that every American who wants a job can find one. In addition. states could experiment with Bridge to Work programs. upon approval of the Secretary of Labor. A demonstration project. Under this program. lack of experience can be a significant barrier. these initiatives include streamlining training and employment services so that job seekers can visit a single location or go to a single web site to find the help they need. As discussed in Chapter 6.

Studies have found that the EITC increases participation in the labor market (Eissa and Liebman 1996. the average household participating in the SNAP program received monthly benefits worth $287. Families and individuals qualify if their income and assets are sufficiently low. As part of the Recovery Act. In FY 2010. The maximum benefit amount increases with the number of children in the family. Table 7-1 reports the number of participants and Federal cost of several important programs. or a disabled nonelderly person. improves maternal health outcomes (Evans and Garthwaite 2010) and helps low-income individuals acquire additional experience that contributes to higher earnings growth (Dahl. Roughly half of all SNAP participants were children. One of the largest Federal programs targeted at lowincome families is the Earned Income Tax Credit. The Tax Relief and Job Creation Act of 2010 extended these changes through 2012. 40 percent of participating 206 | Chapter 7 . SNAP benefits are funded by the Federal Government and administered by states. and more than three-quarters of all participant households included a child. The assistance is available only to those with earnings. The benefits of the EITC go beyond the amount of the credit received.Other Safety Net Programs Several means-tested programs also provide support to American families. Nondisabled adults who have no dependents and who are not working or participating in a work training program can usually receive SNAP benefits only for three months over a three-year period. providing those families as much as $600 extra. especially those who have experienced adverse economic shocks. with the average claimant receiving $2. Roughly a quarter of all children participated. Congress created a new category with a higher credit for taxpayers with three or more children. and the income level at which the credit begins to phase out differs according to taxpayer filing status (single or married couple filing jointly).220. The Supplemental Nutrition Assistance Program (SNAP) is another critical safety net program targeted at low-income families.000 over 2008 levels. and the amount of the credit increases with a worker’s earned income up to a maximum level and then phases out at higher income levels. Over 26 million working families and individuals received the EITC on their 2010 tax return. Participants usually receive their benefits on electronic benefit transfer cards that can be used only to purchase food. a refundable tax credit for low-income workers. DeLeire. and increased the income level at which the credit phases out for married couples filing jointly by $3. Meyer and Rosenbaum 2000). and Schwabish 2009). an elderly person.

and the number of recipients is the average of point-in-time recipients over fiscal year 2010. The number of SSI recipients is as of December 2010. like UI.9 Unemployment insurance 10. Department of Agriculture.4 158. Department of Labor.8 584. Medicaid Payment Advisory Commission. Department of Housing and Urban Development.9 47. Social Security Administration. or subsidized employment.1 Social insurance Means-tested transfers and credits Note: Recipients are counts of individuals except for recipients of EITC (tax filing units) andhousing (families). Current projections are that SNAP enrollment will begin falling next year. $668 a month for a family of four. SNAP not only provides direct benefits to participant households. 2010 Participants (millions) Federal expenditures (billions of dollars) Medicare 47. and recipients and expenditures are for fiscal year 2010.4 18. Thirty-nine states in addition to the District of Columbia.000 job slots created for adults and youth. with an estimated 260. Office of Management and Budget.9 Temporary Assistance for Needy Families 4. and TANF are for fiscal year 2010.3 billion to the largest targeted employment initiative in the history of welfare reform.8 59.3 Social Security Disability Insurance 10. and the Virgin Islands established subsidized employment programs.7 37.5 522. Federal expenditures include grants to states. Public and assisted housing includes only programs operated by the Department of Housing and Urban Development. Both participation and expenditures are strongly countercyclical in the SNAP program.Table 7-1 Number of Participants and Total Federal Expenditures for Safety Net Programs. Internal Revenue Service. which provided $5 billion to states for increased spending for basic assistance. Thus. Source: Center for Medicare and Medicaid Services. Medicaid/CHIP. Department of Health and Human Services.8 Public and assisted housing 4. nonrecurrent shortterm benefits. While most of these subsidized employment Preserving and Modernizing the Safety Net | 207 . households received the maximum benefit for their family size—for example. including committing $1. as the economy continues to recover.8 Old Age and Survivors Insurance 43.3 281. For all other programs. Puerto Rico. but also has a stabilizing effect on the economy by limiting declines in consumption during economic downturns. Expenditures for UI. SNAP. The Recovery Act established the Emergency Contingency Fund for state Temporary Aid for Needy Families programs.2 127. the number of recipients represents those participating at any point in the (calendar) year.3 Earned Income Tax Credit 26.9 Supplemental Nutrition Assistance Program 40. States expanded efforts in all three areas. increasing during economic contractions and decreasing during expansions.7 Medicaid/Children's Health Insurance Program 58.5 Supplemental Security Income 7. many of them involving subsidies that created jobs with private sector employers.3 68.

the Administration has also developed new programs that help unemployed homeowners avoid foreclosure. As discussed in Chapter 4. In December 2010. A recent study illustrates how critical these programs are to their participants (DeCesaro and Hemmeter 2008). or individuals with disabilities.9 million Americans received SSI benefits. Two other programs that are critical to the safety net provide benefits to Americans with disabilities. deceased. about 6. However. Social Security Disability Insurance (SSDI) is a social insurance program designed to offset the loss of wages of workers with long-term health conditions that prevent “substantial gainful activity.” Individuals with adequate Social Security–covered employment history. of which 90 percent included children. especially low-income families. Beneficiaries receive a cash benefit based on their income before becoming disabled. The Housing Choice Voucher program served 2. the largest Federal program aimed at low-income households is the Housing Choice Voucher program. more than 10 million people received SSDI benefits. the President has proposed the Pathways Back to Work Fund (discussed in Chapter 6) that would provide employment opportunities for low-income individuals and the long-term unemployed. a means-tested entitlement program that provides cash benefits to needy aged. or disabled worker entitled to Social Security benefits. or children (disabled before age 22) of a retired. In addition to the 2. blind. offsetting the loss of employer-sponsored health insurance. of that total. The Federal safety net includes several programs designed to ensure that financial stress does not result in homelessness. roughly 7.3 million families assisted by the Department of Housing and Urban Development’s project-based rental assistance and public housing programs. adjusted upward by wage inflation. 208 | Chapter 7 .6 million qualified on the basis of a disability. In December 2010. Stable housing allows families to weather labor market shocks and is a precondition for children’s educational success. Using data from 2002.efforts were not sustained at previous levels after Recovery Act funding ended. the elderly.1 million families in FY 2010. Housing is the largest component of virtually every family’s budget. are covered by the program. A second Federal program that assists persons with disabilities is Supplemental Security Income (SSI). or disabled individuals. Based in part on the success of this initiative. Recipients become eligible for Medicare after two years. many jurisdictions have maintained programs at a smaller scale. the study shows that nearly a quarter of SSDI and roughly half of SSI beneficiaries had family incomes that fell below the Federal poverty level. The program is a particularly important source of income for older working-age adults: roughly one-quarter of all participants are between the ages of 50 and 64.

First. the Affordable Care Act will significantly strengthen the health care safety net. either through their own employer or through the employer of a family member.the programs play an important role in keeping their beneficiaries out of extreme poverty. Because employer-sponsored groups are formed for reasons other than purchasing health insurance. The Economics of Employer-Sponsored Health Insurance One of the defining features of the U. the changes brought about by the new law need to be considered in the context of the current system. While only 5 percent of SSI beneficiaries were in extreme poverty. Therefore. the amount that employees are required to contribute toward premiums generally does not vary with health risk. A stable risk pool translates to lower administrative costs as insurers need to devote fewer resources to underwriting. they represent stable risk pools. Health Insurance In March 2010. health care system is the central role played by employers. roughly nine in ten Americans with private health insurance obtain their coverage through the workplace. There are three main sources of savings. Within firms. which is defined as having an income below 50 percent of the Federal poverty threshold. taking away SSI benefits would have raised that figure above 40 percent. Employer policies themselves contribute to this stability and to the spreading of risks. Administrative savings also Preserving and Modernizing the Safety Net | 209 . Employer-sponsored insurance is generally much less costly for workers— who pay for coverage through reductions in their wages as well as direct premium contributions—than coverage purchased directly in the individual market. the majority of SSDI recipients relied on that program for at least 75 percent of their income. Common employer and insurer policies—such as limiting periods when employees can sign up for coverage and requiring a minimum employee participation rate—prevent employees from declining coverage when they are healthy and joining the plan only when they need medical care. The Affordable Care Act builds on and maintains the strengths of the current private system of employer-sponsored health coverage and insurance provided through Medicare. According to this study. substantially increasing the number of Americans with health insurance and providing new protections and benefits to those who are already insured. employer-sponsored group coverage greatly mitigates the problem of adverse selection. and the Children’s Health Insurance Program (CHIP). When fully implemented. Medicaid.S. the President signed into law the Patient Protection and Affordable Care Act (the Affordable Care Act). Today.

Because important costs vary with the number of contracts rather than the number of individuals covered by a contract. Figure 7-3 plots the percentage of workers who lack health insurance (left axis) against an estimate of their per capita health spending divided by their median income (right axis). The value of the tax exemption is not explicitly tied to firm size. the estimated FY 2011 tax expenditure associated with the exemption from Federal taxes is $282 billion. less than half of those with 2 to 24 employees do. whereas nearly all firms with more than 50 employees offer health benefits. For a typical worker in the 15 percent tax bracket. large firms are substantially more likely to offer a choice of plans: more than 80 percent of private sector establishments with 1. compared with 18 percent of establishments with 50 or fewer employees. Overall. because employer expenditures on health insurance premiums are exempt from Federal and state income taxes and Social Security payroll taxes. this ratio can be seen to capture changes in the affordability of health insurance. Between 2000 and 2010.come from economies of scale in marketing and administration. the greater the probability it will offer health insurance. Figure 7-2 illustrates that. rising health care costs have eroded the accessibility of employer-sponsored health insurance. the tax exclusion reduces the cost of insurance by roughly one third (Gruber 2010). especially for middleclass families who experienced relatively little income growth over that period. Over the past two decades. the share of private sector establishments with fewer than 50 workers that offer health insurance benefits declined from 47. Although the cost savings associated with employer provision of insurance can be large. The figure indicates that during the 1980s insurance became less affordable as health care costs 210 | Chapter 7 . The advantages of more efficient risk pooling and economies of scale in marketing and administration increase with firm size.000 than to sell to 1. Firm size affects more than just whether workers are offered coverage. As a result. And some very large firms have actively promoted strategies to improve health care quality and patient safety. Employees who have a choice of plans tend to report greater satisfaction with their insurance coverage and their health care (Schone and Cooper 2001).2 percent. Among firms that offer insurance.000 individuals. employer-sponsored insurance can effectively be purchased with pretax dollars. it is less expensive on a per-person basis to sell to a group of 1.2 percent to 39. but because compensation tends to be higher in larger firms. Third. Because the growth in health spending is a principal determinant of rising insurance premiums. this advantage is correlated with size as well.000 or more employees offered a choice of health insurance options in 2010. the larger the firm. the savings are not evenly distributed among employers.

However. In the mid-1990s. the cash welfare program. while 18 percent of nonelderly adults were uninsured. the affordability index remained relatively constant. the share of children who were uninsured was 14 percent. Medicaid eligibility was tied to eligibility for Aid to Families with Dependent Children.  Insurance  Component. The most significant eligibility expansions came as part of the Omnibus Budget Reconciliation Acts of 1989 and 1990. the two programs were delinked. As a result of this confluence.Figure  7-­2   Percentage  of  Private  Sector  Establishments  Offering  Health  Insurance     by  Number  of  Employees. causing coverage to decline once again. Starting in 1986. and insurance coverage stabilized. coverage among children has actually increased because of expanded eligibility for public programs. with these expansions the share of children without health insurance began to decline. health care spending grew less rapidly and a strong economy caused median income to rise.  1996ʹ2010   Percent   100 90 50+  employees   80 70 60 25±49  employees   10±24  employees   50 40 30 2±9  employees   20 10 0 1996 1998 2000 2002 2004 2006 2008 Source:  Medical  Expenditure  Panel  Survey. even as the share of uninsured adults rose.       2010 grew faster than median incomes and the percentage of workers without coverage grew. Medicaid and CHIP: A Health Care Safety Net for Children As insurance coverage has declined among working-age adults over the past two decades. By 1997. health care cost growth picked up again in the late 1990s and has outstripped income growth for the past decade. Preserving and Modernizing the Safety Net | 211 . and income eligibility limits for Medicaid were increased. Until the mid-1980s. As the data in Figure 7-4 depict.

although CHIP allows states more flexibility in designing their programs. and by 2000 every state program was up and running. States began implementing CHIP in late 1997. the President signed the Children’s Health Insurance Program Reauthorization Act of 2009.11   0.13 Percent  of  workers   without  insurance     (left  scale)   0. over 212 | Chapter 7 . the percentage of children who are uninsured has fallen since the late 1990s and is now less than half the adult rate. Today. the Recovery Act provided additional support to states by boosting the Federal share of Medicaid at a time when program enrollment was increasing and state budgets were in crisis.09 20 17 Per  capita  health   expenditures  for  privately   insured  adults  divided  by   median  income  among   workers     (right  scale)   14 1979 1985 1990 1995 2000 Source:  CEA  extension  of  Gilmer  and  Kronick  (2009).05 0. including new performance bonuses for states that successfully increase coverage by streamlining eligibility and enrollment procedures. Between 2008 and June 2011.07 0. President Obama has built on the success of Medicaid and CHIP by making these programs even stronger. In the early days of the Administration.03 2005 2010 That same year. which extended funding for CHIP through September 2013. As a result of Medicaid and CHIP. Also in 2009.       0.15 Percent  uninsured   26 23 0.  1979 ʹ2010   Ratio  of  expenditures  to  income   0.Figure  7-­3   Percentage  of  Workers  Without  Health  Insurance  and  the  Ratio  of     Per  Capita  Health  Expenditures  to  Median  Income. the income eligibility limit in 47 states and the District of Columbia is 200 percent of the Federal poverty level or greater. CHIP is funded jointly by states and the Federal Government. now CHIP) as part of the Balanced Budget Act of 1997. Congress established the State Children’s Health Insurance Program (initially referred to as SCHIP. This legislation also introduced administrative reforms that improve program effectiveness. Like Medicaid.

the loss of private coverage is mostly offset by an increase in public insurance. more than half of the working-age Americans who lose employer-sponsored insurance during an economic downturn end up uninsured. however. Research suggests that. Many studies indicate that the expansion of Medicaid and CHIP has also significantly improved access to health care. This discrepancy between the experience of adults and children will change with the full implementation of the Affordable Care Act. Other research shows that increased Medicaid eligibility for children leads to an increase in hospitalizations Preserving and Modernizing the Safety Net | 213 . In 2010. Because of Medicaid and CHIP.   4.     1988ʹ2010   Percent     25 20 Age  18–64     15 Age  under  18   10 5 0 1988 1993 1998 2003 2008 Note:  Data  for  1988  to  1998  adjusted  to  reflect  CPS's  2011  revision  to  the  health  insurance   editing  process. a 1 percentage point increase in the national unemployment rate translates to almost a 1 point decrease in the percentage of nonelderly adults and children covered by employer-sponsored insurance (Holahan and Garrett 2009). Without a strong public insurance safety net for adults. the Affordable Care Act extended funding for CHIP through 2015.  Annual  Social  and  Economic  Supplement.     Source:  Current  Population  Survey. described below. One study using data from the 1980s and early 1990s found that eligibility for public insurance roughly halved the probability that a child failed to have at least one physician visit a year (Currie and Gruber 1996a).4 million children gained coverage through Medicaid and CHIP.Figure  7-­4   Percentage  of  Children  and  Adults  Without  Health  Insurance. insurance coverage of children tends to be less sensitive to changes in macroeconomic conditions than that of adults. For children. holding other factors constant.

cost-sharing. The state-level Exchanges will extend to workers at small firms. These new tax credits are targeted at lower. 2011). 1996b). By 2019. the law will expand Medicaid coverage mainly among nonelderly adults. By creating a marketplace in which consumers 214 | Chapter 7 . Roughly half of the coverage gain will come from raising Medicaid eligibility limits to 133 percent of the Federal poverty level. benefits. Individuals and families with incomes up to 400 percent of the Federal poverty level who do not have access to affordable employer-sponsored coverage that meets a minimum value will be eligible for premium tax credits that they can use to purchase coverage through an Exchange. Because income eligibility limits for CHIP in all states already exceed this level. Within an Exchange.and middle-income families who currently receive little or no benefit from the large tax subsidies that implicitly support the system of employer-sponsored insurance. the Affordable Care Act is expected to increase the number of Americans with health insurance by more than 30 million. ranging from improvements in subjective health status (Currie. Although the primary responsibility for administering Medicaid will remain with the states. those that are avoidable if a child receives appropriate primary care) (Dafny and Gruber 2005). part-time workers. The Affordable Care Act also establishes a Small Business Health Insurance Options Program (SHOP) in each state that gives small employers and their employees access to private health insurance plans and small business health insurance tax credits as well. funding for the expanded coverage will come almost entirely from the Federal Government. but a decrease in “preventable” admissions (that is.overall. and Lin 2008) to reduced child mortality (Currie and Gruber 1996a. Decker. Expanding Health Care Coverage: The Affordable Care Act The Affordable Care Act builds on the strengths of employersponsored insurance and on the success of earlier expansions of Medicaid and CHIP to expand and strengthen the health care safety net. Exchanges will provide transparent information on premiums. consumers and employers will be able to choose from a broad menu of plans. Most of the remaining coverage gains will come from private insurance purchased through state-level Affordable Insurance Exchanges. To improve consumer choices. and nonworkers many of the advantages of employer-sponsored insurance already enjoyed by employees of large firms: more efficient risk pooling and greater administrative economies of scale than are available in the current individual and small group market. Improved access to care translates into better health outcomes. and plan quality—information that will help cut the high consumer search costs that push up premiums in the small group and individual health insurance markets (Cebul et al. the self-employed.

) Since July 2010. a second important reason is lack of access to affordable coverage. The Affordable Care Act establishes new consumer protections for health insurance coverage purchased either through an Exchange or in the outside individual or small group market. because many young adults have not yet settled into full-time jobs that offer health benefits. Although one reason large numbers of young adults have no health insurance is that people in this age group tend to be in good health and do not perceive a need for health care (the “young invincibles” hypothesis).can easily compare plans on the basis of price and quality. geography. Some provisions of the Affordable Care Act. they switch plans in response to small differences in premiums (Buchmueller 2009). As a result. or other factors. As of the end of 2011. consumers who are uninsured and unable to get insurance because of a pre-existing condition can find subsidized coverage through the Pre-Existing Condition Insurance Plan. will not take effect until 2014. Considerable evidence from large employers shows that when employees are given a choice of health plans and clear information about premiums and benefits. the probability of being uninsured jumps between the ages of 18 and 19. Another coverage-related provision of the law that is already in force allows young adults to remain on their parents’ private insurance policies until they reach age 26. Insurers are now prohibited from retroactively cancelling coverage because of honest mistakes made on the application. The Act also eliminates lifetime dollar limits on essential health benefits and restricts the use of annual dollar limits. 45. This loss of coverage Preserving and Modernizing the Safety Net | 215 . as many young adults lose coverage under their parents’ employer-sponsored insurance. premiums may vary by age. and smoking status.000 individuals were enrolled. Insurers will not be allowed to deny or limit coverage on the basis of an individual’s health status. This temporary program gives uninsured individuals with costly conditions access to affordable insurance until the full set of consumer protections takes effect in 2014. Provisions of the Affordable Care Act Now in Place Many of the insurance market reforms. Within certain limits. This policy targets a population that is disproportionately uninsured. the Exchanges should increase competition among insurers. These market reforms fill an important gap in the health care safety net. many of which are already in effect today. gender. however. but not by individual health status. The Act also includes a requirement that individuals who can afford insurance maintain minimum essential coverage. have already been put into place. (Annual benefit limits will be eliminated completely by 2014. along with the expansion of Medicaid and the creation of the Exchanges.

3   27. In contrast. Estimates from the third quarter of 2010 show that 35.6 percent of the younger group was uninsured.3 percentage points. The dependent coverage provision of the Affordable Care Act took effect on September 23. and Gross 2012). age 26 to 35. Because even before this policy. Data from several independent sources indicate that the policy has significantly increased the insurance coverage of young adults.     2010  Q3  and  2011  Q2   35. insurance coverage was essentially unchanged for the older group.   216 | Chapter 7 2010  Q3   2011  Q2   Ages  26–35   . the experience of the older group provides a sense of what would have happened to the younger group had this provision of the Affordable Care Act not gone into effect. compared with 27. Dobkin.translates to a significantly lower use of health care services (Anderson.5 million people.7   28. Because these two groups should face roughly similar labor market conditions. highlighting the change in insurance coverage for youth age 19 to 25 in comparison to a slightly older group. among the younger group the share uninsured fell 8. This change translates to a gain in health insurance coverage for approximately 2.3   25 20 15 10 5 0 2010  Q3   2011  Q2   Ages  19–25   Source:    National  Health  Interview  Survey. the coverage gains arising from the Affordable Percent   40 Figure  7-­5   Percentage  of  Young  Adults  Without  Health  Insurance. 2010. Figure 7-5 presents data from one such source.7 percent of the older group. college students were able to stay on their parents’ insurance plans or obtain coverage through their school. the National Health Interview Survey. Between the third quarter of 2010 and the second quarter of 2011.6   35 30 27.

The study finds that in the program’s first year insurance coverage significantly increased the use of outpatient and inpatient care and of prescription drugs. 2011) examines the effect of insurance coverage on low-income adults. The study. As a result. about a third of uninsured families have no financial assets at all. and financial security. The study also noted significant gains in several self-reported measures of physical and mental health. the study avoids the fundamental problems of inference inherent to observational studies.Care Act have been concentrated among non-students and recent graduates. and the average uninsured family can afford to pay only 12 percent of the cost of a single hospitalization (Chappel. which uses data from Oregon’s Medicaid program. access to Medicaid coverage was determined randomly by a lottery. Today few uninsured families have the resources to cover the cost of a serious illness. First. because of budgetary constraints. Research on previous coverage expansions suggests that health insurance can significantly improve all three outcomes. has two especially notable features. Kronick. According to one recent study. In addition to improving access to appropriate care. These findings are especially striking because the health benefits of improved access to care are likely to grow over time. As noted. in the same way patients are assigned to treatment and control groups in a randomized control trial. health. The Oregon study used several financial outcomes to assess economic benefits of insurance. its population sample is similar to the group that will gain Medicaid coverage as a result of the Affordable Care Act. One recent study (Finkelstein et al. considerable research has examined the benefits of health insurance for children. and Glied 2011). health insurance protects individuals and families from the financial risk associated with uncertain and potentially catastrophic medical costs. Second. The Economic Benefits of Expanding Insurance Coverage Expansion in health insurance coverage from the ACA can be expected to positively affect access to care. Many of these newly insured young adults are from lower middle-class families who are working to maintain their position in the economy in the face of not only the recent economic downturn. but long-run forces that have been working against the middle class for decades. These effects and the impact of other provisions of the Affordable Care Act will be important topics of research (see Data Watch 7-2). The added care led to increases in the share of men and women screened for high cholesterol and high blood sugar and in the share of women receiving mammograms and Pap tests. It found that individuals with health insurance were less likely to have unpaid bills sent to a collection agency and that they were significantly Preserving and Modernizing the Safety Net | 217 .

Increased insurance coverage should lead to improved access to care and improved population health. Additional information on utilization comes from HHS surveys of health care providers. produced by the Centers for Medicare and Medicaid Services. 2010). and the American Community Survey—provide data on various aspects of insurance coverage. combine information on insurance coverage with information on medical care utilization and health status. and hospitals. Whether this conclusion can be generalized is the subject of ongoing research. and the National Income and Product Accounts. the Household Component of the Medical Expenditure Panel Survey (MEPS). the Survey of Income and Program Participation. including office-based physicians. ambulatory care facilities. Efforts also are under way at the Bureau of Labor Statistics to improve the collection of health data to better measure health sector prices and productivity (Bradley et al. produced by the Bureau of Economic Analysis—provide independent estimates of national health spending. Retus. Another component of the MEPS surveys employers on key features of the health insurance they offer employees. Research in this area focusing on selected conditions has shown that disease-based measures allow for a more nuanced understanding of what drives the growth in health spending. 218 | Chapter 7 .Data Watch 7-2: Health Data for Policy Health policy formulation and evaluation requires high-quality data on a broad range of outcomes. The NHIS and another HHS survey. and Smith 2008). Two Federal data programs—the National Health Expenditure Accounts. The results suggest that failing to account for changes in the inputs used to treat a particular condition and for improvements in health outcomes leads to an overestimate of health care inflation and an underestimate of productivity gains in the health sector (Aizcorbe and Nestoriak 2011). One objective of the Affordable Care Act is to substantially increase the number of Americans with health insurance. These surveys along with other Federal data programs will be important resources for monitoring the impact of the Act. Current initiatives by Federal agencies and academic researchers are aimed at developing data systems that support disease-based estimates of health spending (Aizcorbe. The National Health Interview Survey (NHIS) sponsored by the Department of Health and Human Services (HHS) and three other surveys conducted by the Census Bureau—the Current Population Survey’s Annual Social and Economic Supplement. Federal surveys have provided the basis for a large research literature that informed the design of the Affordable Care Act.

before Medicare was enacted in 1965. job mobility. Although the Affordable Care Act’s coverage expansions and insurance market reforms are targeted at nonelderly Americans. The inability of private markets alone to provide adequate health insurance coverage for seniors is a classic example of adverse selection (Akerlof 1970).1 billion in drug discounts. The Affordable Care Act also puts in place several strategies for reducing the growth in Medicare spending.less likely to report having to borrow money or skip paying other bills to pay medical expenses. The Affordable Care Act and Medicare Given the high and uncertain medical expenses faced by seniors. more than 24 million elderly Americans have benefited from the elimination of cost sharing for preventive benefits. the health insurance coverage that Medicare provides for individuals age 65 and older is a critical component of the health care safety net. numerous studies find that the link between health insurance and full-time employment distorts decisions regarding labor supply. The benefits of the Affordable Care Act’s coverage expansion are likely to spill over to the labor market as well. or retire before they are eligible for Medicare. Indeed. the new law has important implications for Medicare as well. and reduces out-of-pocket costs for prescription drugs in the Medicare Part D coverage gap. adds an annual wellness visit. Such efforts to “bend the cost curve” are essential to maintaining the long-run fiscal status of the program Preserving and Modernizing the Safety Net | 219 . they often find it difficult to compete with large firms in attracting and retaining workers. Because small firms cannot offer health insurance that matches in cost and quality the insurance offered by larger firms. Indeed. the lack of affordable insurance options in the individual health insurance market poses a barrier to workers who would like to start their own business. It provides new benefits to seniors by eliminating cost sharing for recommended preventive services. These findings are consistent with earlier research showing that the advent of Medicare in 1965 generated large benefits in the form of reduced exposure to out-of-pocket medical expenditure risk (Finkelstein and McKnight 2008). By the end of 2011. By improving the health insurance options available to small employers and expanding the availability of affordable individual coverage.6 million beneficiaries have received $2. only an estimated one-quarter of seniors had meaningful private insurance (Finkelstein 2007). and retirement (Gruber and Madrian 2004). Similarly. and 3. work part-time. the Affordable Care Act should greatly reduce if not eliminate these distortions. Today Medicare covers roughly 40 million elderly Americans and 8 million people under age 65 who qualify on the basis of disability.

Because of Medicare’s outsized role as a purchaser of health care. The mission of the Innovation Center is to help transform the Medicare. Both the Shared Savings program and a similar Affordable Care Act initiative developed through the Center for Medicare and Medicaid Innovation (the Innovation Center) reward ACOs that are able to reduce the growth in health care spending while achieving high standards for clinical quality and patient satisfaction. and reduced costs. hospitals. to protect retired households against 220 | Chapter 7 . coordinated care to Medicare beneficiaries. These strategies include models of enhanced primary care. Medicaid. which in turn leads to a more productive workforce and stronger economic growth. In this sense. both to improve health and to use scarce resources more efficiently. saving not only bolsters the standard of living in retirement for participating workers but also raises the quality of life for future generations. and lower costs to people enrolled in Medicare. for example. the use of episode-based bundled payments to improve care coordination. Capital thus accumulated leads to greater investment. From a broader societal perspective. and CHIP. encourages physicians. Retirement Security For older Americans. These savings and benefits together allow retirees to maintain the living standards they had during their working lives and to protect themselves against downturns in the financial markets. and CHIP programs to deliver better health care. some Americans elect to accumulate additional savings in hopes of bequeathing assets to their heirs. better health. and other health care providers to create strong incentives for providers to redesign the way they deliver care. policymakers have implemented a variety of policies to encourage capital accumulation. hospitals. Over the years. Medicaid. The center’s portfolio of initiatives includes demonstration projects that test new strategies for providing higher-quality health care more efficiently. In addition. and the risk of running down one’s assets. The Act includes important changes in the way Medicare pays doctors. and other organizations to form Accountable Care Organizations (ACOs) to provide cost-effective. and a challenge grant program that will award up to $1 billion in grants to applicants who will implement the most compelling ideas for delivering better health. The Medicare Shared Savings Program. private retirement savings fuel capital accumulation. improved care. retirement savings in combination with Social Security benefits are a critical element of the safety net.and reducing long-run Federal budget deficits. unexpectedly high health care costs. these initiatives are likely to spur similar innovations by private insurers.

other accounts allow after-tax contributions to grow and be withdrawn tax-free. Social Security payments.economic shocks.” Preserving and Modernizing the Safety Net | 221 . Social Security is the nation’s retirement security bedrock. with much of the recent change owing to declining housing values. many households have not accumulated sufficient assets to overcome the potential risks faced in retirement. also known as Social Security. Many American households have responded to these tax incentives by building assets toward retirement. and to increase the likelihood that Americans enjoy the same quality of life during retirement that they enjoyed during their working years.2 trillion in 2010. the proportion of households with adequate retirement saving has been in decline for decades.2 For members of Generation X (individuals born between 2 These estimates are based on the National Retirement Risk Index (NRRI) produced by the Center for Retirement Research at Boston College. The overall tax expenditure for the principal retirement saving incentives is substantial. provide sufficient income to enjoy a comfortable retirement. combined with private savings and employer-provided retirement benefits.8 million elderly Americans out of poverty.561. households that are more than 10 percent below the benchmark are deemed to be “at risk. totaling almost $120 billion in fiscal year 2010. Declining Retirement Preparedness Despite the availability of tax-related incentives to spur saving. The program also provides a key safety net for survivors of deceased workers. Each household is assigned a benchmark “adequate” replacement rate. As illustrated in Figure 7-6. tax preferences for retirement saving give working-age households greater incentive to accumulate assets toward retirement. For each household. Even as Social Security helps provide a stable source of income in retirement. helping roughly 6 million surviving spouses and children. and for many others. with total balances in defined-contribution and individual retirement accounts (IRAs) rising to nearly $9. paying out $596. In 2010 Social Security income lifted an estimated 13. which pays retiree benefits to more than 95 percent of elderly individuals in the United States. the NRRI estimates household income in retirement (based on projected assets at retirement) as a share of pre-retirement earnings. Most tax-preferred accounts allow workers and their employers to make pre-tax contributions to a retirement account and also allow earnings on those contributions to accumulate tax-free. the share of households “at risk” of experiencing marked declines in consumption in retirement rose from 31 percent in 1983 to 51 percent in 2009. this percentage represents the replacement rate of pre-retirement earnings. By some estimates. make the difference between meeting basic needs and living in poverty.4 million beneficiaries in 2011—an average annual benefit of $13.7 billion to 44. The most prominent of these programs is Old Age and Survivors’ Insurance.

the mid-1960s and 1972), the situation is even more troubling, with nearly
three in five households in that age group in danger of becoming unable to
maintain their living standard in retirement (Munnell, Webb, and GolubSass 2009).
Although retirement preparedness has been in decline in the aggregate, specific demographic groups are particularly vulnerable. Single individuals and low-income households are all especially likely to enter retirement with insufficient assets. For example, one estimate for 2009 identified
60 percent of low-income households as inadequate savers, compared with
42 percent of high-income households (Munnell, Webb, and Golub-Sass
2009). Another estimate found that 60.2 percent of single men had insufficient retirement wealth to maintain preretirement consumption, compared
with 45.2 percent of married couples (Haveman et al. 2006).
Recent economic shocks have impacted individuals nearing retirement. Between 2007 and 2009, Americans aged 55 to 64 saw their real
median household income decline by 5 percent and their median net worth
fall 15 percent—from $258,000 to $222,000 (Bricker et al. 2011). In addition, the value of housing—a key source of wealth for older Americans—has
dropped 34 percent since the housing market’s peak in April 2006. The
value of financial assets also declined precipitously following the financial
crisis and has yet to rebound fully to pre-recession levels. The combination
of declining asset values and lower income has further weakened retirement
preparedness.

Challenges to the Retirement Safety Net
Several developments have contributed to the problem of inadequate
retirement saving. A first-order concern is declining participation in
employer-sponsored retirement plans. Between 2000 and 2010, the share
of private sector workers between the ages of 21 and 64 who participated in
an employer-sponsored retirement plan fell from 48 percent to 39 percent.
The past several decades have also seen changes in the nature of private employer retirement plans. The share of private-sector workers covered
by defined-benefit pension plans fell from 38 percent in 1980 to 20 percent
in 2008 as many private employers switched to defined-contribution plans
like 401(k) plans. Section 401(k) and other defined-contribution plans offer
workers particular benefits, such as portability, high potential for growth,
and flexibility. However, the shift to 401(k) plans (and to a lesser degree
a shift from traditional defined-benefit pensions to hybrid defined-benefit
plans such as cash balance plans) has also transferred substantial risk away
from employers, placing greater responsibility on workers to accumulate
and manage assets and exposing them to greater financial risk.
222 | Chapter 7

Figure  7-­6  
The  National  Retirement  Risk  Index,  1983ʹ2009  
Percent  of  households  "at  risk"  
60
51  
50

40

36  
31  

31  

30  

1983

1986

1989

30

40  

38  

43  

44  

2004

2007

38  

20

10

0
1992

1995

1998

2001

2009

Source:  Munnell,  Webb,  and  Golub-­Sass  (2009).    

To take full advantage of the wide array of incentives for retirement
saving, workers must assess complex details associated with establishing an
account, making contributions, managing investments, and eventually making withdrawals. In the face of complex saving and investment decisions,
some workers put off enrolling in employer-sponsored retirement programs
or taking advantage of tax-preferred saving vehicles outside of employment. Such delays are costly in terms of lifetime asset accumulation. (See
Economics Application Box 7-1 for more information on common mistakes
made by retirement savers.)
Another challenge to the retirement safety net is the uneven distribution of the benefits of the tax code’s generous incentives for retirement
saving. Because these tax incentives are often provided as a deduction or
exclusion from income, they are most valuable for taxpayers in higher tax
brackets. In the aggregate, these incentives flow disproportionately to upperincome households; almost 80 percent of the total tax benefit is projected to
go in 2012 to the richest 20 percent of households and more than 40 percent
to households in the top 5 percent of the income distribution (Toder, Harris,
and Lim 2011).
The availability of employer-sponsored retirement saving options
also varies by firm size. As with health insurance, small employers face
significant challenges in establishing retirement plans. High per-participant
Preserving and Modernizing the Safety Net

| 223

administrative costs, frequent employee turnover, uncertain revenues, and
lack of familiarity with plan design and characteristics all discourage small
business owners from providing retirement plans. Their inability to provide
these plans not only threatens retirement security for employees of small
businesses but also can make small businesses less attractive to workers than
larger employers are.
These obstacles to retirement saving keep account balances low for
many households. In 2011, more than half of all workers reported that the
total value of their household’s savings is less than $25,000; 29 percent said
they have less than $1,000 in savings (Helman, Copeland, and VanDerhei
2011). Although some of these workers may participate in defined-benefit
pensions, others will enter retirement with little income outside of Social
Security. One analysis of households aged 65 to 69 in 2008 showed that the
median household had just $15,000 in financial assets and $5,000 in private
retirement assets (Poterba, Venti, and Wise 2011). Most households in the
sample had more wealth in housing equity than in liquid assets (Table 7-2).
One of the toughest retirement challenges involves uncertainty about
how long retirees are likely to live. With extended longevity comes the possibility that an individual will live longer than expected and will thus outlive
his or her accumulated assets. This possibility increases as the time between
retirement and expected age of death lengthens. In 1970 a worker retiring at
age 65 could expect to live another 15.2 years; by 2008 that figure had grown
to 18.7 years. Although extending life expectancy is an exceptional achievement for the United States, it also increasingly exposes retirees to the risk of
outliving their assets outside of Social Security. In 2010, just 17 percent of
Americans aged 65 to 69 relied on Social Security for more than 90 percent
of their income, but the share almost doubled, to 33 percent, for Americans
age 80 and older (Figure 7-7).
Another serious risk is costly health shocks. Even with the protection
provided by Medicare, many retirees face high out-of-pocket health expenditures, diminishing their retirement assets and threatening their well-being.
Recent research estimates that for a 65-year-old couple, the expected present value of lifetime out-of-pocket medical costs exceeds $250,000, with a 5
percent risk that expenses will exceed $570,000 (Webb and Zhivan 2010). As
discussed in Data Watch 7-1, out-of-pocket health costs can push retirees
into poverty.
The risk of large health expenditures and the possibility of outliving one’s assets force retirees to face difficult decisions about how much
of their assets to consume in any given year. Uncertainty about lifespan,
inflation, investment return, and unexpected medical expenses makes
the “decumulation decision”—how much to withdraw from accumulated
224 | Chapter 7

Table 7-2
Distribution of Wealth Components for Households Aged 65–69, 2008
Thousands of dollars

Percentile

Financial
assets

Personal
retirement
account
assets

Financial
+ personal
retirement
account

Housing
equity

Definedbenefit
pension

Social
Security

Net worth

10

0.0

0.0

0.0

0.0

0.0

0.0

197.0

20

0.3

0.0

0.8

5.0

0.0

154.3

297.3

30

2.0

0.0

5.5

42.0

0.0

214.5

413.6

40

6.0

0.0

20.0

80.0

0.0

267.9

564.0

50

15.0

5.0

52.0

120.0

0.0

315.3

731.1

60

32.0

28.8

104.0

162.0

25.3

379.0

898.4

70

70.0

75.0

195.0

229.5

116.8

463.3

1,146.4

80

145.0

142.0

375.0

349.2

238.5

542.9

1,483.4

90

358.0

347.0

711.0

585.0

468.9

643.1

2,103.0

Source: Poterba, Venti, and Wise (2011).

saving—exceptionally complicated. Retirees who live longer than expected
might find themselves with insufficient assets in the later years of life, at
a time when they are most vulnerable and in need of a reliable stream of
income. While private annuities can serve to mitigate many of these risks,
annuities markets face a host of obstacles including regulatory barriers,

Percent    
100

Figure  7-­7  
Percent  of  Individuals  with  Various  Shares  of  Family  Income    
from  Social  Security,  by  Age  of  Householder,  2010  
less  than  50%

50-­90%

more  than  90%

90
80
70

48%  

44%  

38%  

63%  

60
50

29%  

40
30

27%  

28%  

19%  

20
10

17%  

25%  

28%  

33%  

0
Age  65  to  69
Age  70  to  74
Age  75  to  79
Over  age  80
Source:  Current  Population  Survey,  Annual  Social  and  Economic  Supplement.    

Preserving and Modernizing the Safety Net

| 225

Economics Application Box 7-1: Financial Literacy and
Common Mistakes Made by Retirement Savers
A generation ago, when many workers were covered by definedbenefit plans, retirement savings decisions were relatively easy. Today,
workers must take much more responsibility for ensuring that they have
adequate income throughout retirement. Achieving that goal requires
avoiding some mistakes commonly made in saving for retirement.
Below is a list of five mistakes that people often make.
Missing out on the tax benefits of saving. The tax code affords strong
incentives for retirement saving. Participation in an employer-sponsored
retirement plan or individual retirement account can yield thousands of
dollars of extra retirement wealth over time. In addition, low- and middle-income households can take advantage of the Saver’s Credit, which
effectively provides workers with a Government match on new saving.
Workers can substantially increase their retirement savings by
contributing early and taking advantage of tax benefits for retirement
saving. For example, if a 25-year-old contributes $1,000 toward retirement in a taxable account, that $1,000 can be expected to grow to
approximately $7,300 in today’s dollars by the time the worker reaches
age 65. Taking advantage of tax benefits for saving can substantially
increase this amount. If the same worker contributes $1,000 to a Roth
IRA, that $1,000 can be expected to grow to nearly $10,300 in today’s
dollars by the time the worker reaches age 65. As illustrated in the figure
below, the benefits of tax-preferred saving increase over time.
Simulated  Accumulation  for  an  Intial  $1,000  Contribution  to    
a  Taxable  Account  or  Roth  IRA,    2012ʹ2052  

Dollars  (2012)  
12,000
10,000
8,000
6,000
4,000

Roth  
IRA  

Taxable  
Account    

2,000
0
2010
2015
2020
2025
2030
2035
2040
2045
2050
Note:  Calculations  assume  a  6  percent  real  rate  of  return  and  15  percent  tax  rate.  
Source:  CEA  calculations.    

226 | Chapter 7

Failing to participate in an employer-sponsored retirement plan.
Some employer-sponsored retirement plans provide an employer match
for money that an employee deposits into a retirement account. Taking
advantage of an employer match is one of the best ways to leverage
retirement contributions and rapidly accumulate saving. Many workers,
especially new hires and young employees, however, leave this “free
money” on the table by failing to sign up for a retirement plan. In 2001,
only 57.5 percent of workers aged 20–29 participated in a company
retirement plan even when one was offered (Kawachi, Smith, and Toder
2006).
Failing to diversify retirement savings. Investment needs and risk
appetites vary across households. However, concentrating all assets
in one particular type of investment can prove risky, especially if that
asset is stock in an employee’s company. One study found that in
2002, nearly 4 million workers invested in excess of 80 percent of their
employer retirement plan assets in own-company stock (Mitchell and
Utkus 2002). In general, investors can protect themselves against risk by
spreading their assets across various types of investments.
Losing investment returns to high fees. High fees can inhibit rapid
accumulation of retirement wealth. Savers should pay attention to all
investment fees, including those charged at purchase of a mutual fund,
ongoing fees, fees charged by brokers and registered investment advisors, and fees charged on the purchase of annuity products. Although
these fees are ordinarily charged for legitimate services provided, investors should incorporate the cost of fees in their purchase decisions.
Cashing-out retirement savings. When workers leave a job, some
fail to rollover their pension wealth into an IRA and pay a penalty for
cashing out their retirement savings. These leakages in retirement savings make it difficult to arrive at retirement with adequate amounts of
savings. In 2006, workers aged 15 to 60 cashed out $74 billion in retirement assets when changing jobs (GAO 2009).
Failing to protect against longevity and health care risk in old age.
As lifespans increase, more Americans will face the prospect of running
out of money in old age. Planning for and protecting against the risk
of outliving family assets as well as the need for long-term care is an
essential part of the retirement security picture.

Preserving and Modernizing the Safety Net

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behavioral aversion to annuities, and inadequate savings to purchase an
annuity (Benartzi, Previtero, and Thaler 2011).

Policies to Address Retirement Saving Challenges
The President has proposed several policies to bolster Americans’
retirement saving behavior and lead to a more secure retirement for millions
of families. Perhaps the most significant policy is the establishment of automatic IRAs for tens of millions of workers. This proposal builds on a broad
literature showing that automatic enrollment can dramatically increase
participation rates in workplace retirement plans. For example, Madrian and
Shea (2001) show that the participation rate after one year of employment
at a large corporation increased from 37.4 percent to 85.9 percent following
the adoption of automatic enrollment.
The President’s proposal would require most firms without qualified
employee retirement plans to offer employees an automatic IRA option. By
default, automatic IRA contributions would be funded by payroll deductions equal to 3 percent of pay, unless employees opted out of the program
or elected to contribute a different amount. Firms would not contribute on
behalf of the employee, and companies offering the automatic IRA to workers could claim a tax credit for the employer’s associated expenses up to $500
for the first year and $250 for the second year along with an additional tax
credit of $25 per employee—up to a maximum of $250 a year for six years.
The automatic IRA would transform the retirement saving landscape.
Employees who previously accumulated little or nothing toward retirement
would begin accumulating assets immediately. Upward of 40 million workers, all previously ineligible for workplace retirement saving plans, would be
covered by the new proposal. About 80 percent of these workers would be
low- and middle-income employees with less than $50,000 in annual wages,
indicating that the IRA would primarily be targeted at workers who are more
likely to have accumulated little savings.
The Administration also proposes to increase the tax credit for small
businesses that adopt, for the first time, a qualified employee retirement
plan. Under current law, small businesses can receive up to $500 in tax
credits—each year for up to three years—for establishing an employee retirement plan. The President proposes to double the maximum credit to $1,000
annually to provide a stronger incentive for small employers to establish
workplace retirement plans.
The Administration’s Budget eases the compliance burden for retirement savings by exempting retirees with modest accumulated saving from
minimum required distribution (MRDs) rules. MRDs are established to
ensure that retirees with high accumulated retirement assets direct those
228 | Chapter 7

assets towards retirement, and not use retirement accounts to shelter their
income from estate taxes. The Administration proposes to exempt retirees
with less than $75,000 in retirement savings from these rules. This move
would simplify tax compliance for millions of elderly Americans, who
would no longer need to calculate the amount and timing of their minimum
required payouts. It would give millions of seniors greater freedom of choice
as to when and how rapidly to spend their limited assets in retirement, while
also adding flexibility to purchase lifetime income products—such as longevity annuities—that might violate MRD regulations.
The Administration has made a commitment to financial literacy as a
means of assisting Americans in making sound decisions regarding saving
and investment. In 2010, the President signed an Executive Order creating the
President’s Advisory Council on Financial Capability to assist the American
people in understanding financial matters and making informed financial
decisions. In addition, the Wall Street Reform and Consumer Protection Act
of 2010 created the Consumer Financial Protection Bureau, which is charged
with educating consumers about financial matters and enabling them to
make sound financial decisions. And, in 2011, the Financial Literacy and
Education Commission, established to coordinate Federal efforts to promote
financial literacy, developed a new national strategy to enable Federal agencies to coordinate and promote all the Federal initiatives aimed at helping
Americans make better financial choices.
Taken together, these policies will lead to a more inclusive retirement
saving landscape. Workers who would defer retirement saving because of
financial inertia or behavioral obstacles will automatically be put on a path
toward better saving. Easing MRD rules will simplify financial decisions
in retirement for millions of elderly Americans. A coordinated national
financial literacy campaign will help Americans become more active savers and will lead to improved investment decisions and smarter consumer
behavior. More active saving, coupled with improved investment behavior,
will increase the level of assets earmarked for retirement saving, leading to a
more stable retirement for millions of Americans.

Conclusion
A strong and dynamic economy requires a robust and modern safety
net to protect families against economic shocks and to provide a level of
security that promotes entrepreneurship and economic growth. The challenging economic times of the past decade have made clear the important
role that public policy can play in this area. In particular, unemployment
insurance benefits, the Earned Income Tax Credit, and the Supplemental

Preserving and Modernizing the Safety Net

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Nutrition Assistance Program have kept millions of American families out
of poverty. Medicaid and the Children’s Health Insurance Program have
ensured that children are able to maintain health insurance coverage even if
their parents lose access to employer-sponsored plans.
New policy initiatives will further strengthen the safety net. Although
the current system of unemployment insurance has provided critical support for dislocated workers, the system can be modernized and improved.
The President has proposed a number of innovative programs that would
make it easier for jobless workers to invest in new skills or even start their
own businesses. These proposals build on current programs that have been
proven to work.
The Affordable Care Act represents the most significant improvement
in the health care safety net since the advent of Medicare and Medicaid
in the mid-1960s. By 2019, the Act is expected to increase the number of
Americans with health insurance by over 30 million, and it will put in place
new consumer protections ensuring that health insurance coverage remains
available and affordable for all Americans regardless of an individual’s
health status or medical history.
In the area of retirement security, the President has proposed a
number of policies that will boost retirement savings, making it more likely
that Americans will enter retirement with adequate assets to maintain their
desired level of consumption. These efforts to strengthen the safety net
will provide tangible benefits for the economy and families in the coming
decades.

230 | Chapter 7

clean domestic energy and transportation infrastructure. Pollution. Appropriately balanced efforts to restrict harmful pollution can improve economic performance along with the health and safety of Americans. can cause illness and destroy the livelihood of fishermen and others who rely on a healthy ecosystem to earn a living. does not subtract from the gross domestic product. The theme of this chapter is that. considered how to expand the national income accounts that track the country’s economic activity to properly take into account the environment and natural resources. Carefully designed regulations can promote economic growth and improve the Nation’s quality of life. AND PUBLIC INVESTMENT R ecent years have seen an unprecedented number of official efforts to improve. both economic growth and the Nation’s well-being can be increased by smart regulation. Beyond the Market. published in 2005. proposed ways to integrate nonmarket activity into the accounts. develop. Nature’s Numbers.C H A P T E R 8 IMPROVING THE QUALITY OF LIFE THROUGH SMART REGULATION. published in 1999. INNOVATION. as Robert Kennedy noted. This work has implications for economic policy. innovation and public investment in such fields as medical research. properly measured. Water pollution. CLEAN ENERGY. for example. Much of the groundwork for these efforts was laid in two important National Research Council reports. and implement new measures of the quality of life and economic performance. 231 .

Measuring the benefits of regulations for the quality of life is a formidable task. which enable the Environmental Protection Agency (EPA) to promulgate regulations with the goal of making U. roughly one in every 200 Americans was addicted to narcotics found in patent medicines (DOJ n. by improving the health and vitality of the workforce. Most recently. Today. Drug.A Smart Approach to Regulations For more than a century. In 1900. the Food Safety Modernization Act of 2010 further improved the safety of food sold in the United States by. housing.” For example. Following the disclosure requirements in the Pure Food and Drug Act. swimming. sanitation. Similarly. for example. the water pollution controls provided for in the Rivers and Harbors Act have been incorporated into more expansive provisions in the Clean Water Act of 1972 and the Safe Drinking Water Act of 1974. Much of the benefit from those types of regulations eventually translates 232 | Chapter 8 . Fuchs (1998 and 2010) attributes gains in life expectancy prior to World War II to improvements in “nonmedical factors: nutrition. which authorized the Food and Drug Administration (FDA) to inspect food and drug products and regulate their sale. among other provisions. requiring food processors to have plans in place for addressing safety risks. the Pure Food and Drug Act of 1906 was amended by the Food. by speeding the adoption of energy-saving technologies. giving the FDA the authority to directly issue mandatory food recalls. in response to yellow fever and cholera outbreaks caused by water pollution. and requiring importers to verify food safety. As society evolves and technology changes. waters safe for drinking. public health concerns about unsanitary meat packing conditions and patent medicines containing narcotics gave rise to the Pure Food and Drug Act of 1906. such basic protections afforded to citizens through regulation are updated and improved.” Similarly. or by upgrading the operation of the transportation system. Some forms of regulation have a positive effect on economic growth. It was amended again in 1962 to require manufacturers to prove drug effectiveness (Randall 2001). and public health measures. and Cosmetic Act of 1938 to give the FDA the authority to require evidence of safety for new drugs and to tighten food quality standards.d.). by promoting stable and efficient operation of financial markets. sales of patent medicines containing those substances fell by nearly a third (Musto 1999). by improving educational outcomes. the Rivers and Harbors Act of 1899 gave the Army Corps of Engineers the authority to regulate the discharge into waterways of “refuse matter of any kind or description. the United States has been a world leader in protecting the health and safety of its citizens through well-chosen regulations. and fishing.S.

| 233 Innovation. Underlying that approach is a belief that a smart. and that avoids unnecessary or overly burdensome requirements. including an informed public discussion. whereas the public’s increased appreciation of that cleaner water would not be. “Improving Regulation and Regulatory Review.” which lays out a balanced approach to regulation—to protect the health and safety of the American people in a way that maximizes net benefits to society. The President called for an agency-wide review to reduce burdensome regulations. transparency. And monetized savings from the retrospective review of regulations called for in the new Executive order are likely to exceed $10 billion over the next five years. both before and after regulatory action. the benefits of regulation help the economy. Designing Smart Regulations On January 18. For example. that uses the best information available. safeguards against invasive species. how it can generate the largest net benefits (the difference between total benefits and total costs) to society. “Smart regulations” are those that maximize the net benefits of a regulatory action to society. Clean Energy. Many of those regulations are intended to improve the quality of life by correcting market failures that lead to unsafe living or working environments. and Public Investment . such as the protection of the National Park System. which can be used to determine how it can reach its goal in the most efficient manner—that is. Benefit-cost analysis attempts to quantify and assign dollar values to the various effects of a regulation. President Obama issued Executive Order 13563. or cleaner lakes for swimming and fishing. In other cases. The net benefits of regulations finalized in 2011 are expected to be at their highest level in the last 10 years.into increases in GDP. but it can also be used to “look back” at existing Improving the Quality of Life through Smart Regulation. increased tourism or higher returns to commercial fishing resulting from cleaner water would be reflected in GDP. The Executive order directs the Office of Information and Regulatory Affairs (OIRA) of the Office of Management and Budget (OMB) to provide oversight. and coordinates that interagency review of rulemakings to ensure that regulations are consistent with applicable law. 2011. even when economic efficiency is neither the only nor the overriding public policy objective. Such information is useful for both policymakers and the public. but are less easily charted in the national accounts. as in the case of protecting privacy. and discipline for executive agencies in the regulatory process. Benefit-cost analysis is used to estimate likely future benefits and costs of a proposed regulation. effective regulatory system depends on careful analysis of costs and benefits. Effective regulations put into place rules that correct for significant market failures and thus achieve greater social benefits.

formally requiring that “regulatory action shall not be undertaken unless the potential benefits to society for the regulation outweigh the potential costs to society and that regulatory objectives shall be chosen to maximize the net benefits to society. when President Reagan issued Executive Order 12291. Executive Order 13563 offers new directions for regulatory review. All together. those costs were far outweighed by the corresponding number of lives saved per year by seat belts (DOT 2004.” President Clinton issued Executive Order 12866. and subsequent increases in belt use raised the annual number of lives saved to more than 15.) Smart Regulations in Practice Benefit-cost analysis has long been used to evaluate regulations within the Federal Government. DOT 2009). The buckle-up laws of the mid-1980s raised the number of lives saved by wearing seat belts to 6. Such retrospective analyses can be used both to improve existing regulations and to better evaluate new ones. the Flood Control Act of 1936 declared that “the Federal Government should improve or participate in the improvement of navigable waters or their tributaries including watersheds thereof. Smart regulations thus seek to use the best information available in order to maximize net benefits by setting regulatory stringency at the most efficient level—the point at which the incremental benefits are equal to the incremental costs.” The use of benefit-cost analysis in evaluating Federal regulations has become widespread since 1981. Kahane 2004). seat belt regulations saved an estimated 268. see Economics Application Box 8-1.000 a year by 1988–90.regulations. (For another example of how benefit-cost analysis works. based on evidence about the actual. which focused OIRA oversight on “significant” rules and increased transparency. In particular. for flood-control purposes if the benefits to whomsoever they may accrue are in excess of the estimated costs. even though the marginal costs of seat belt standards increased over time (front-seat shoulder and rear-seat lap belts were mandated for cars in 1968 and for light trucks and vans in 1971. As noted earlier. For example.000 lives (Kahane 2004. and if the lives and social security of people are otherwise adversely affected. which reaffirms the principles in Executive Order 12866 and outlines a regulatory strategy to support continued economic growth and job creation. between 1975 and 2009. including a requirement that agencies “use the best available techniques to quantify anticipated present and future benefits and costs as accurately as possible” while authorizing consideration of “values that are 234 | Chapter 8 . For example.000 in each year from 2003 to 2007. President Obama issued Executive Order 13563. and three-point belts were required in the mid-1970s). realized benefits and costs of those regulations.

human dignity. In calendar year 2011. Those economically significant rules are expected to result in $15 billion in costs and $116 billion in benefits annually (in 2001 dollars).   Improving the Quality of Life through Smart Regulation.  total  costs. Figure 8-1 shows the benefits and costs of regulations.  2001 ൞2011   Billions  of  2001  dollars   140 120 Total  benefits   100 80 60 40 20 Net  benefits   Total  costs   0 2001 2003 2005 2007 2009 2011 Note:  Total  benefits. the Administration completed 740 regulatory reviews.   Source:  Office  of  Information  and  Regulatory  Affairs. Those figures reflect an estimate of not only purely monetary savings.” meaning that they are anticipated to have an effect on the economy of more than $100 million in any given year. which are detailed in the agencies’ Regulatory Impact Assessments for each economically significant rule and summarized annually in OMB’s annual Regulatory-Right-to-Know report to Congress. fairness. Data and estimation methods have improved substantially over time. citizens in the last decade.difficult or impossible to quantify. annualized net benefits totaled more than $101 billion. For Figure  8-­1   Benefits  and  Costs  of  Regulations. In 2011 alone. | 235 Innovation. illnesses. smart regulations are generating the highest level of net benefits for U. Of the interim final and final rules reviewed. as have modeling tools for projecting a regulation’s effect into the future. and injuries. including equity. 18 percent were “economically significant. Clean Energy.S.” Based on the quantified benefits and costs in current regulations. Over the past three calendar years. and Public Investment .  and  net  benefits  are  based  on  the  midpoints  of  agency   estimates  for  regulations  completed  during  the  calendar  year. and distributive impacts. the annualized net benefits of completed rules have totaled about $155 billion. but also an estimate of the monetary value of prevented deaths. 336 of which were interim final or final rules from executive agencies.

both the benefits and costs were calculated by raising ESC installation from that baseline of 71 percent to 100 percent. 236 | Chapter 8 . This rule will increase the fraction of new vehicles with ESC from 29 percent in 2006 to 100 percent in 2012. many consumers declined. when offered the choice.000 crashes that would be prevented by the rule. To determine the noninjury component of benefits. This market failure was caused by asymmetric information (drivers purchasing a vehicle could not fully assess the protection afforded by ESC systems) and by a negative externality (consumers purchasing a car without an ESC system did not fully account for the risks of a crash to others). at a 3 percent discount rate. injuries.Economics Application Box 8-1: Comparing Benefits and Costs How do policymakers determine whether a regulation is a smart regulation? For example. DOT estimates that as of 2011. Therefore. At a 7 percent discount rate. The benefits of the rule include reductions in fatalities. however.a Second.000 pounds be equipped with electronic stability control (ESC) systems. yielding $247 million in benefits at the discount rate of 7 percent.b The monetary value of those benefits depends on the discount rate.0 billion. How did the DOT decide this was a smart regulation? First.000– 91. as the Box Table shows. but it was not being offered by some manufacturers and. the reduction in injuries and fatalities translates into $6. property damage. Using historical accident data. the DOT multiplied the individual unit costs for travel delays and property damage by the 67.896. in 2007. the DOT identified what is arguably a market failure: a relatively affordable technology existed that lowered the risk of a crash. on how much benefits in the future are worth today (a high discount rate implies that people discount the future more and thus any benefits that accrue in the future would be valued less today). and travel delays. DOT estimated that a decline of 67. the DOT then examined the likely costs and benefits of equipping all passenger cars and light trucks/vans with ESC by model year 2012. which reduce crashes by improving braking in critical situations when the driver is beginning to lose control. that is.4 billion in benefits. Approximately 17 million vehicles will be subject to this regulation. the DOT multiplied the total number of loss-of-control crashes by the average effectiveness of ESC systems and found that 67.547 and decrease total annual injuries by 46. the Department of Transportation (DOT) decided to require that all new passenger vehicles weighing less than 10. To monetize those benefits. manufacturers would have installed ESC in 71 percent of their fleet absent the rulemaking.000 crashes would be avoided each year.000 crashes would reduce total annual fatalities by 1. all resulting from fewer accidents. those benefits are $8.

Annual Costs and Benefits by Discount Rate
Millions of 2005 dollars

Injury and fatality benefits
Savings from reduced property damage and travel delays

3%
discount

7%
discount

$7,965

$6,360

309

247

Total benefits

8,274

6,607

Vehicle costs

985

985

Fuel costs

27

22

Total costs

1,012

1,007

Net benefits

7,262

5,600

Note: Vehicle costs are not discounted, because they occur when the vehicle is purchased, whereas benefits occur over the vehicle’s lifetime and are discounted back to the time of purchase.
Source: Department of Transportation, National Highway Traffic Safety Administration (2007).

The DOT determined that production costs would rise by between
$111 and $479 for each affected vehicle, depending on whether the
vehicle was already equipped with anti-lock braking systems, a necessary
component of ESC. The expected costs of the standard above the baseline total $985 million. Because the average weight of passenger cars is
expected to increase by 2.1 pounds as a result of the new equipment, the
lifetime fuel use of those vehicles is expected to go up by 2.6 gallons. At
discount rates of 7 percent and 3 percent, the total additional fuel costs
are $21.8 million and $26.8 million, respectively. Summing vehicle and
fuel costs gave the total costs of the regulation: about $1.0 billion. Net
benefits, then, are the difference between total costs and total benefits,
or between $5.6 billion and $7.3 billion each year for the lower range of
accident prevention.
a For further discussion of market failures and automobile safety standards, see
Mannering and Winston (1995), Arnould and Grabowski (1981) and Viscusi and
Gayer (2002).
b The appropriateness of including private benefits net of private costs in a
benefit-cost analysis varies from rule to rule. By including private net benefits—
the value of reducing injuries and fatalities of the consumers minus the purchase
cost of the technology—the DOT is making the implicit assumption that
consumers have made a suboptimal purchasing decision (one of the market
failures being addressed by the regulation). However, if consumers do not face an
information problem, a traditional approach would assume that consumers have
made the purchasing decision that maximizes their welfare. If this were the case,
it would be inappropriate to include those private net benefits in the analysis. For
further discussion, see Gayer (2011).

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Innovation, Clean Energy, and Public Investment

example, the health benefits from reducing different air pollutants over different time periods and populations have been estimated by epidemiologists
using air quality monitoring data and various health endpoints (EPA 2011a).
Improvements in computing power and data records now allow air quality
modelers to forecast the effects of regulatory actions on future air quality
under different scenarios. Combining those estimates allows policymakers
to weigh the expected health results of a given air quality regulation with the
expected costs associated with the controls required by the rule.
A peer-reviewed study by the EPA using the Criteria Air Pollutant
Modeling System estimated that the Clean Air Act prevented more than
160,000 premature deaths, 54,000 cases of chronic bronchitis, 130,000 nonfatal heart attacks, and 1.7 million cases of asthma exacerbation between
1990 and 2010. Those adverse health outcomes could have led to 86,000
emergency room visits for respiratory problems, 3.2 million lost school days,
and 13 million lost work days (EPA 2011b).
Some health benefits from Clean Air Act regulations will likely raise
economic growth indirectly and over time through intermediate factors.
For example, a healthier population will arguably be a more productive
one, a change that can be measured in improved labor productivity. A
growing consensus has identified certain of those intermediate drivers of
growth, including increased human capital, capital investment, research
and development, economic competition, physical infrastructure, and good
governance. Some evidence strongly suggests that regulations promoting
educational attainment may improve human capital accumulation, thereby
increasing economic growth over time (for example, see Cohen and Soto
2007). Other studies show a positive link between increased life expectancy
and economic growth. A survey of the existing literature on health and
economic outcomes (Bloom et al. 2004) finds in cross-country analysis that
a one-year increase in life expectancy generates a 4 percent increase in economic output, controlling for other variables. Similarly, Murphy and Topel
(2006) find that progress made battling various diseases after 1970 added
about $3.2 trillion a year to national wealth.

Retrospective Analysis
The prospective benefit-cost analysis that goes into crafting smart,
efficient regulations is necessarily fraught with uncertainty. Prospective
analysis requires that the costs and benefits of a regulation be identified
and quantified before (ex-ante) the regulation is implemented. Only after a

238 | Chapter 8

regulation has gone into effect can its actual (ex-post) effects become known
(see Data Watch 8-1).1
Changes in technology often make pollution abatement cheaper. For
example, the actual costs to utilities of the cap-and-trade system for sulfur
dioxide allowances set up by the Clean Air Act Amendments of 1990 were
much lower than had been predicted. Scrubbing technologies turned out
to be more efficient at removing sulfur dioxide from emissions, and power
plants were able to blend a higher percentage of cheaper, low-sulfur coal
than had initially been assumed. Moreover, the benefits of reducing sulfur
dioxide emissions have since been found to be much larger than originally
thought. As a result, subsequent regulations for utilities have tightened controls on those emissions.
Similarly, during the 1970s, automobile technologies were improved
by new pollution standards. Regulators were phasing lead out of gasoline,
and again the costs of the regulation were overestimated and the benefits
underestimated. Lead impairs brain development in children and has been
linked to serious health problems in adults such as hypertension, heart
attacks, and premature death (Lovei 1998). Concern about high blood lead
concentrations in the U.S. population led the EPA to begin in 1974 to phase
in a stringent standard reducing the amount of lead allowed in the gasoline
supply. Subsequent studies found that the annual benefits of banning lead
in gasoline would be more than $6 billion (in 1983 dollars), but would cost
around $500 million a year (Schwartz 1985). Harrington, Morgenstern, and
Nelson (1999) note that those costs may have been overstated, but that it was
difficult to disentangle the effects of a phase-out of leaded gasoline from the
much larger effect of changes in oil markets around that time. Research also
found that the benefits of lowering lead exposure were greater than initially
thought. The EPA’s 1985 benefit estimate implied that reducing mean blood
lead concentrations in the population by 1 microgram per deciliter (or 1 µg/
dl) was worth at least $3.5 billion a year (Schwartz 1994). By 1994, however,
researchers were finding that a reduction of 1 µg/dl in mean blood lead
concentrations resulted in much greater benefits than earlier estimates—as
high as $17.2 billion a year (1989 dollars) (Schwartz 1994). The phase-out
of leaded gasoline was completed in 1995; by then the average blood lead
concentration was approximately 2.3 µg/dl, down from more than 15 µg/dl
in the early 1970s (Weaver 1999).

1 Retrospective analyses of benefits and costs are also subject to uncertainty, because they
require evaluation of a counterfactual scenario in which the rule was not adopted. Identifying
that counterfactual is often difficult, in part because changes that occurred due to the rule are
difficult to distinguish from changes that the industry would have adopted voluntarily.

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Innovation, Clean Energy, and Public Investment

Data Watch 8-1: The Value of Information—the PACE Survey
One of the few data sources for benchmarking costs of air and water
pollution controls is the Pollution Abatement Costs and Expenditures
(PACE) survey, which recently has been funded by the Environmental
Protection Agency (EPA) and administered by the Census Bureau. From
1973 to 1994, the PACE survey was administered annually to nearly
20,000 manufacturing and mining facilities and electric utilities. Since
1994, because of resource constraints, the Census Bureau has conducted
this survey only twice (for 1999 and 2005). To estimate the overall regulatory burden facing American manufacturers, the PACE survey collects
data on overall pollution abatement expenditures by manufacturers for
treatment, prevention, recycling, and disposal, rather than trying to
allocate costs to specific regulations. It is the only survey that measures
environmental compliance costs at both the individual and aggregate
levels (Ross et al. 2004).
Pollution equipment expenditures have fallen over time, on average accounting for 7 percent of all investments made by manufacturing
industries in the early 1990s and 4 percent in 2005. There is considerable
variation in spending across industries, but given that pollution levels
(and the negative externalities associated with pollution) also vary by
industry, that is neither surprising nor necessarily suboptimal.
The EPA has used PACE data to estimate the cost of both past
and proposed regulations (see for example, Gallaher, Morgan and
Shadbegian 2008). Academics have used the data set to investigate the
relationship between EPA regulations and economic outcomes. For
example, Levinson (1999) used the PACE data to develop a new index of
state environmental compliance costs. Similarly, Shadbegian and Gray
(2005) examined the relationship between of pollution abatement and
productivity. And Becker (2005) found expenditures on environmental
compliance for small facilities differ from larger facilities.

“Look-Back” Initiative
President Obama’s Executive Order 13563, issued in 2011, directed
executive agencies to conduct retrospective reviews of their regulations to
determine whether any of the agencies’ regulations should be modified,
streamlined, expanded, or repealed. This Executive order was followed by
Executive Order 13579, which called on independent agencies to conduct
such retrospective reviews to the extent possible. Look-back exercises enable
regulatory agencies to learn whether they can increase net benefits by modifying existing regulations, expanding regulations, or even eliminating existing regulations that may turn out to be ineffective or duplicative.

240 | Chapter 8

Incorporating ex-post benefits and costs of regulations is the key goal
of the new Executive order requiring agencies to conduct retrospective
reviews of their regulations. In the past, agencies have undertaken such
reviews in certain situations but only on an ad hoc basis. The new Executive
order aims to improve regulatory analyses by providing a formalized process
for incorporating new information into regulations and for gaining insight
into the costs and benefits borne by the private sector in practice.
The President’s regulatory look-back initiative has produced more
than 500 reform proposals, detailed in 26 agency plans, and monetized savings from this review are likely to exceed $10 billion over the next five years.
A number of recent actions eliminate or streamline unjustified or excessive
regulations, and the Administration has put in place an improved regulatory system that will generate more current and accurate information on
regulatory costs and benefits. Moreover, pursuant to Executive Order 13579,
issued in July 2011, some of the major independent regulatory agencies have
also issued preliminary retrospective review plans for public comment.2 Five
examples illustrate the effectiveness of the look-back initiatives.
First, the Occupational Safety and Health Administration (OSHA),
has announced a final rule that will eliminate redundant reporting burdens;
the regulation is expected to save employers 1.9 million hours and $40 million annually. OSHA also plans to finalize a rule projected to result in more
than $585 million in savings each year by making U.S. hazard classifications
and labels consistent with other nations.
Second, since the 1970s, the EPA has treated milk as “oil” subject
to regulations designed to prevent oil spills. In response to feedback from
the agriculture community and the President’s Executive order, the EPA
recently concluded that the rules placed unjustifiable burdens on dairy farmers and decided to exempt milk from those regulations. That exemption will
save the dairy industry, including many small businesses, as much as $148
million per year.
Third, to reduce burdens on railroads, the Department of
Transportation has proposed to refine its requirements for tracks that are to
be equipped with positive train controls. This equipment can automatically
control a train in emergency circumstances, reducing the risk of an accident.
The potential refinements would eliminate the need for costly wayside components and mitigation measures along as much as 10,000 miles of track
where they are not needed for safety. The initial 5-year savings are expected
to be as high as $335 million, with total 20-year savings of up to $778 million.
2 Specific retrospective analyses by executive and independent agencies can generally be found
on the relevant websites; for example, the Federal Trade Commission provides information on
its retrospective review process at http://www.ftc.gov/ftc/regreview/index.shtml.

Improving the Quality of Life through Smart Regulation, | 241
Innovation, Clean Energy, and Public Investment

Fourth, the EPA has proposed to eliminate a requirement for air pollution vapor recovery systems at local gas stations in many states, on the
ground that modern vehicles already have effective air pollution control
technologies. The anticipated annual savings from eliminating the requirement are estimated to be as high as $87 million.
Fifth, the Health and Human Services Department has proposed or
finalized several rules that reduce regulatory burdens and restrictions on
doctors and hospitals and that are expected to save more than $5 billion over
the next five years.
There are many other look-back efforts—in all, the initial round of
retrospective proposals is expected to eliminate millions of hours of required
paperwork for individuals, businesses, and State and local governments and
to save billions of dollars.

Improvements in Everyday Life
Every time Americans drive a car, take a breath, swim in a lake, or take
a medication they are benefiting from regulations. As noted, such improvements in quality of life often show up in national accounts only as a fraction
of their total benefit to society. For example, although the growth and size
of the pharmaceutical industry are reflected in GDP, the value of assurances
given to the U.S. public that the medicines they are taking have been tested
and verified to be effective and safe goes far beyond the measured value of
that sector to the national economy.
Similarly, the Clean Water Act and its associated permitting requirements have reduced effluent discharge into U.S. streams, lakes, and estuaries. Putting a price tag on the benefits of being able to swim, fish, and boat
in those bodies of water is difficult. Regardless of the value, some of those
benefits (for example, increasing expenditures on fishing equipment and
recreation) will show up in a calculation of GDP, while many others (such as
reducing the level of fecal coliform in the water) will not. The EPA estimates
the benefits of reducing discharge of conventional pollutants to U.S. rivers
and streams to be approximately $11 billion annually (Bingham et al. 2000).
The EPA’s Superfund program, which identifies, investigates, and
cleans the Nation’s most contaminated hazardous waste sites, has also
improved public health. Since 1980 the Superfund program has prevented
millions of people from being exposed to hazardous substances by requiring
protective and containment measures and the removal from industrial sites
of many millions of tons of material contaminated with toxic chemicals such
as lead, arsenic, mercury, and benzene (EPA 2011c). Studies have shown
that Superfund cleanups have lowered the risk of acute poisoning, improved
infant health, and decreased the risk of cancer (Currie, Greenstone, and
242 | Chapter 8

Moretti 2011; and EPA 2011c). Those improvements are generally not captured well in GDP for any given year.
Even though smart regulations can impose restrictions on the private
sector, as Figure 8-2 illustrates, the resulting benefits do not come at the
cost of prosperity or sacrifices in U.S. standards of living. Over a period of
decades, air quality has improved while the economy has grown; indeed, the
demand for clean air and water has risen along with income across countries
(see for example, Grossman and Krueger 1995; and World Bank 1992).
Even though those benefits do not show up directly in GDP measures, they
are consistent with increases in conventional (albeit incomplete) measures
of growth. Per capita GDP has shown substantial growth between 1980 and
2010, rising by 65 percent, while at the same time per capita emissions of
criteria pollutants (lead, carbon monoxide, sulfur dioxide, nitrogen oxides,
particulate matter, and ozone) have declined by nearly 75 percent. Similar
achievements have been made in other areas as well. The number of fatalities on U.S. roads per million vehicle miles traveled (VMT) has declined by
67 percent between 1980 and 2010, while VMT per capita increased by 44
percent, reflecting the effectiveness of road and vehicle safety regulations.

Innovation
Innovation, loosely defined as the introduction of a new or improved
product, service, or process, is the primary source of long-run increases in
productivity and human welfare (Grossman and Helpman 1991). When new
ideas are integrated into the economy, they offer new possibilities for both
production and consumption. Innovation comes in two general forms: process and product innovation. Process innovations involve new or improved
methods of production or distribution, often as firms seek to reduce costs.
The cost savings are reflected in conventional accounting statistics as greater
productivity. Over time, rising productivity drives the growth in the amount
of output that the economy can produce. By contrast, product innovations
introduce new or improved products or services into the marketplace. As
noted, consumers benefit from product innovations in ways that conventional accounting statistics do not adequately measure.
Although there is no perfect measure of the importance of innovation
to an economy, by many measures innovation has played an increasingly
important role in the U.S. economy in recent decades. For example, the
industries classified by the OECD as “knowledge- and technology-intensive”
have steadily increased as a share of the U.S. economy, from 34 percent
of GDP in 1992 to 40 percent in 2010, according to the National Science
Foundation (2010; 2012).

Improving the Quality of Life through Smart Regulation, | 243
Innovation, Clean Energy, and Public Investment

Figure  8-­2    
Economic  Growth,  Vehicle  Safety,  and  Air  Quality,  1980൞2010  

Percent  change  from  1980  
80

Per  capita  real  GDP  

60
40

Per    capita  VMT  

20
0
Per  capita  emissions  of  
criteria  pollutants  

-­20
-­40
-­60

Fatalities  per  100  
million  VMT  

-­80

-­100
1980
1985
1990
1995
2000
2005
2010
Note:  VMT  is  vehicle  miles  traveled.  Criteria  emissions  are  linearly  interpolated  from  5-­
year  interval  data  between  1980  and  2010.  
Source:  National  Highway  Traffic  Safety  Administration;;  Federal  Highway  
Administration;;  Environmental  Protection  Agency;;  Bureau  of  Economic  Analysis.  

Private-sector competition is the primary driver of innovation. Firms
in innovative industries must continually work to improve their products
or increase their efficiency to avoid losing market share to competitors.
Businesses that successfully invest in innovations are rewarded in the
marketplace. Incentives for businesses to invest in innovation are often less
than optimal from the perspective of society as a whole, however, primarily
because the innovator may not be able to capture all of the benefits generated by the innovation. The positive spillovers from innovation mean that
the private returns from innovation will often be less than the social returns,
particularly when it comes to basic research. Private firms have limited
incentive to conduct basic scientific research from which they generally can
capture only a small fraction of the value that emerges from that research. As
a result, private markets may lead to underinvestment in basic science and
limited diffusion of scientific advances.
Because private incentives to invest in innovation are often inadequate,
public-sector support for innovation has important benefits. Government
can promote innovation in many ways. By operating a well-functioning
system of intellectual property rights, the government can help innovators earn returns commensurate with the social value of their innovations.
Government can increase investment in innovation through research
and development (R&D) expenditures, both by direct funding and by tax

244 | Chapter 8

incentives. It can facilitate the commercialization of innovations by removing barriers that prevent the private sector from transforming inventions
into marketable products. It can provide infrastructure necessary for innovation, for example by allocating spectrum to support the growth of wireless
broadband, itself an important platform for innovation in mobile devices,
applications, and services. The government can also target innovation initiatives to areas of key public importance, including education, health care,
and energy. This section of the chapter discusses these issues and describes
some of the Federal Government’s current efforts to promote innovation in
the U.S. economy.

Measuring Innovation
Innovation’s crucial role in economic growth and welfare has
prompted efforts to improve the tools to measure it. One longstanding
approach to measuring innovation is to infer that any economic growth
not attributable to additional capital and labor must be due to some sort of
“technical change.” This so-called “Solow residual” approach (Solow 1957),
however, leaves unanswered many questions about the nature of the technical change.
Data on patenting activity can provide a useful, if imperfect, measure
of innovation. Although many innovations are kept secret to preserve competitive advantage, many others are made public through patent filings. The
innovations for which patents are granted vary greatly in their significance,
however, and a raw count of patents cannot account for these differences.
Moreover, increases in patent activity over time may be attributable, at least
in part, to more aggressive patenting of marginal innovations rather than
increases in innovation itself (Hall and Ziedonis 2001). To address these
limitations, studies of innovation have often relied on measures of patent
citations. For example, the number of times a firm’s patents are cited by
other patent applications is more closely correlated with the firm’s market
value than is the raw number of patents it holds (Hall et al. 2001).
New measurement efforts have focused on the funds allocated to R&D
within the economy. Historically, R&D has been treated as an intermediate input to the production process and is therefore excluded from GDP
estimates. Beginning in 2013, the GDP estimates produced by the Bureau of
Economic Analysis (BEA) will include R&D under the category of investment, increasing measured GDP. Spending on R&D is large and growing;
if the new definition had been in effect earlier, current-dollar GDP in 2007
would have been, on average 2.7, percent higher, and R&D would have
accounted for 6.3 percent of real GDP growth between 1998 and 2007.

Improving the Quality of Life through Smart Regulation, | 245
Innovation, Clean Energy, and Public Investment

S. This new survey combines firm-level data on R&D expenditures with measures of new or improved products or processes and patenting and licensing activity. medical science has established that aspirin—an old and inexpensive product—can substantially reduce heart attack risk. For example. Measuring innovation is particularly challenging in the growing medical care sector. trademarks. the patent system “added the fuel of interest to the fire of genius” (Edwards 2006). thereby increasing the incentives to invest in socially valuable innovation. As President Lincoln famously said. For example. many observers have raised concerns about the U. the NSF reports that companies that invest in R&D exhibit far higher rates of innovation than other firms (Boroush 2010). the Federal Trade Commission (FTC 2003) describes concerns that the patent system has failed to keep up with the challenges posed by the growth of the knowledge-based economy. and some preliminary findings have been reported. In fact. however. 246 | Chapter 8 . by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries. and copyrights. possibly encouraged by a lowering of the threshold to their 3 President Lincoln was himself an inventor. The first group of 40. He was granted patent no. the Census Bureau and the National Science Foundation (NSF) have introduced the Business R&D and Innovation Survey. Patients have seen enormous benefits from that scientific advancement. Intellectual Property Rights and Patent Reform Innovation is spurred in part by the desire to reap rewards for developing new products and services that people will value. but those benefits are not captured by estimates of GDP. The central purpose of intellectual property (IP) rights. The National Institute on Aging has sponsored research on the development of national health accounts that would gauge the population’s health status and measure how medical care and other factors affect health. to help improve understanding of the role of R&D in fostering innovation. patent system.” In recent years. Similarly.000 for-profit firms was surveyed in 2009. 6469 in 1849 for a flotation system for lifting riverboats stuck on sandbars. Well-designed IP rights enhance the private returns to innovation and bring them closer to the social returns. the National Academy of Science (NRC 2004) describes unease among academics and practitioners that “the escalation in the number of patents.3 The United States has long had a robust system of IP rights. For example.In addition. is to promote innovation by giving IP owners the right to exclude others from making use of their novel product or service. which include patents. one of the powers explicitly given Congress in the Constitution is “To promote the Progress of Science and useful Arts.

investing in R&D is generally an important element of innovative activity. Clean Energy. the most significant reform of U. on September 16. and innovations arise in industries that perform little R&D as such. Other research demonstrates that the social returns to R&D investment are generally substantially greater than Improving the Quality of Life through Smart Regulation. and Public Investment . President Obama. was creating thickets of rights that could impede innovation.” The opportunity for excessive returns can arise when patents are issued for technologies that are not genuinely novel or when a patent covers a small component of a complex product that allows the patent’s owner to extract royalties disproportionate to the incremental value of the component. Last. This change will make the U. patent law since 1952. the new law will reduce the number of improperly issued patents and thus increase “patent quality. system more efficient and predictable. in some circumstances.S. allowing inventors to invest with more confidence in the validity of their IP rights while reducing the drag on innovation caused by improperly granted patents. “the patent system predictably provides excessive rewards to patent holders. Although innovative activities extend far beyond conventional R&D. greater patenting activity has in fact led to reduced R&D intensity (Hunt and Bessen 2004). By allowing third parties to provide the patent office with additional information that may be helpful in assessing the novelty of an invention for which a patent application has been filed. The law will also reduce wait times for patent applicants by giving the U. the new law will harmonize the American patent system with patent systems in the rest of the world by adopting a “first inventor to file” system. at least in certain industries. Investments aimed at creating new knowledge or applying existing knowledge in new ways are often a necessary precursor to developing new or improved products or processes or entire new industries. | 247 Innovation. A large body of research confirms that investments in R&D increase productivity growth (CBO 2005). signed into law the America Invents Act. Some empirical evidence suggests that.S. Patent and Trademark Office more resources to reduce the backlog of applications and by creating a “fast-track option” for time-sensitive patent applications such as those from fast-growing startups or entrepreneurs seeking venture capital. allowing innovative entrepreneurs to market their products more easily in the United States while simultaneously exporting them abroad. To address concerns about the performance of the patent system. Private and Public Investments in R&D R&D is a critical driver of innovation.” Shapiro (2008) sees the core problem as being that.acquisition. 2011.S.” The law will also reduce unnecessary litigation by creating new ways of resolving patent disputes more quickly and cheaply.

) These findings support the conclusion that R&D investments often have important positive spillover effects that prevent private firms from fully capturing the benefits of their innovations. Hall (2002) finds evidence that capital market imperfections may lead to underinvestment in R&D even in the absence of these spillovers. the Federal Government provides substantial support for R&D. Nordhaus (2004) concludes that “only a minuscule fraction of the social returns from technological advances over the 1948–2001 period was captured by producers. and the positive spillover effects of basic research can be especially large. Moreover. In 2008. During that interval. the U. and Germany combined. the Federal Government is a strong supporter of basic research. Mairesse. which aims to expand scientific knowledge and thus does not generally have immediate commercial applications. Schankerman. thus giving them inadequate incentives to invest in R&D. In addition. a medical imaging technology that has significantly improved diagnosis for cancer and other conditions. Bloom. and Van Reenen 2010. Government invested a greater share of GDP 248 | Chapter 8 . it accounted for nearly 60 percent of the Nation’s basic research expenditures.9 percent in 2009. particularly in basic research. In short. while the Federal Government accounted for only 15 percent of U. public support for R&D remains critically important.S. With an estimated $400 billion in public and private expenditures in 2009. economy has been increasing in recent years. when the Recovery Act helped Federal R&D spending reach 1. For example.” (See also Hall.the private returns. and Mohnen 2009. and Jones and Williams 1998. with the ratio of R&D spending to GDP reaching nearly 2. NSF-funded basic research into the principle of nuclear magnetic resonance ultimately led to the development of magnetic resonance imaging (MRI) machines. Private firms can thus find it especially difficult to capture the benefits that stem from this research. For example. however. economics research provides persuasive support for a robust government role in promoting R&D. the highest since the 1960s. the majority of total R&D expenditures was federally funded. Not surprisingly. Despite the increasing role of private-sector investment in R&D. Private industry investments have consistently accounted for about 90 percent of all nonfederal R&D expenditures. the United States invested more in R&D than China. During the 1950s and 1960s. Overall. R&D spending as a share of the U. R&D spending shifted dramatically. the composition of U. today nonfederal sources predominate. indicating that most of the benefits of technological change are passed on to consumers. Japan. In 2009.18 percent of GDP.S. The United States is a world leader in R&D investments.S. development expenditures and less than one-third of applied research expenditures.S.

to choose the research projects and the method for conducting the research. In its effort to reach this goal. The proposal will further enhance private firms’ incentives to invest in research and will provide Improving the Quality of Life through Smart Regulation. The President’s Fiscal Year 2013 Budget has proposed additional support for science and basic research.9 percent set in 1964 at the height of the space race. competitive programs that provide about $2. Recognizing the importance of R&D for innovation. Recent studies show that the credit is a cost-effective way to encourage research spending (U. enacted in 1981. the Office of Science in the Department of Energy. on December 31. From 2002 to 2006. many defense-related innovations ultimately have significant benefits in the private sector. Subsidizing this activity through the tax system allows the private sector. ultimately led to the emergence of the Internet.S. 2011. and the National Institute of Standards and Technology. the U. A particular success story is the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (SBTT) programs. making progress toward the goal of doubling funding for three key basic research agencies—the National Science Foundation. and Public Investment . Clean Energy. rather than the government. The Research and Experimentation tax credit. Recognizing the importance of continuing these successes. for example. in April 2009. In addition to direct Federal funding for R&D. that proposal is also included in the President’s FY 2013 Budget. Research into communications networks by the Defense Advanced Research Projects Agency. On September 8. President Obama signed a bill reauthorizing the SBIR and SBTT programs for the next six years. Although this largely reflects U.S. 2010. | 249 Innovation. the Administration has promoted incentives to support private R&D investment.in R&D than did the government of any other OECD country. The Recovery Act’s investment of $18. provides a tax credit based on qualified research expenses to encourage businesses to increase their investments. the Administration has supported large increases in Federal R&D funding.5 billion annually to the most promising research projects at small firms. dominance in military R&D (national defense has historically accounted for more than half of Federal R&D expenditures). Even in other years. the President proposed to expand and simplify the credit and to make it permanent. for example. Government’s R&D investments relative to GDP have substantially exceeded the OECD average. the President set the goal of devoting more than 3 percent of GDP to R&D.S.3 billion in research funding was part of the largest annual increase in R&D funding in U. history. both public and private—a share that surpasses the record of almost 2.S. Treasury 2011). about one-fourth of the “top 100” innovations selected by R&D Magazine came from companies that had received an SBIR grant at some point in their history.

recent empirical studies point to substantial frictions attributable to licensing costs and show large gains in innovation when these frictions are reduced (Williams 2010). support additional government-industry collaboration. As the President announced in January 2011. one of the goals of the Administration’s “Startup America” campaign is to foster innovation by increasing the rate of technology transfer. The Department of Energy (DOE) launched a program called “America’s Next Top Energy Innovator.” which offers startup companies low-cost and streamlined procedures for licensing new energy technologies patented by DOE labs. The Administration’s National Bioeconomy Blueprint lays out a number of steps designed to advance biological research innovations. Together. Commercialization An important stage in the process of innovation is commercialization of new technologies. the Administration has announced a number of initiatives in support of this goal. the President issued a Presidential Memorandum directing the heads of Executive departments and agencies to take action to accelerate technology transfer and commercialization of Federal research in support of high-growth businesses.businesses with assurance that the credit will be available for the duration of long-term research projects. including reforms to speed commercialization and open new markets. and Reddy 2007). and encourage the commercialization of novel technologies flowing from research programs—in short. New inventions and new knowledge alone will have little effect on economic welfare unless they are converted into marketable products or processes that change how firms do business. For example. Since then. The NSF’s Innovation Corps program is a public-private partnership that will connect NSF-funded researchers with private-sector mentors who will help to transform the results of scientific research into commercially successful technologies. In October 2011. they will facilitate the commercialization phase of the process of innovation. Mitchell. Other researchers have found that universities often adopt technology transfer policies that constrain the volume of innovations brought into the marketplace (Litan. 250 | Chapter 8 . The National Center for Advancing Translational Sciences at the National Institutes of Health assists biomedical entrepreneurs by identifying barriers to commercialization and speeding development of new drugs and diagnostics. One obstacle to realizing the economic benefits of innovation is the difficulty in transferring new ideas from universities and Federal laboratories to the marketplace. the Administration’s “lab-to-market” initiatives will encourage universities and government research centers to streamline their technology transfer procedures.

Wireless Broadband and Spectrum Policy Information and communication technology (ICT) is vitally important to the U. President Obama introduced his National Wireless Initiative. in areas ranging from media-rich consumer products to health care and education technologies. Any changes in the use of Federal spectrum will be designed to ensure that there is no harmful interference with public safety needs or other critical public uses of the spectrum. and industry forecasters expect data traffic to continue to grow rapidly (Cisco 2011). Bloom. Brynjolfsson and Saunders (2010) conclude that most U.S. Clean Energy. Most recently. In early 2011. tablets. | 251 Innovation. and Public Investment . economy. (2008) estimate that ICT accounted for 59 percent of productivity growth during 1995–2000 and 38 percent during 2000–2006. mobile data traffic has been growing tremendously. For example. and van Reenen (2007) note that the great majority of growth in U. and other mobile devices with Internet access.S. Much of the investment necessary to realize the potential of wireless broadband will come from the private sector. According to the Census Bureau. With the proliferation of smartphones. including developing a nationwide wireless broadband network for public safety and extending wireless broadband services into rural communities. Some of this spectrum will be shifted away from Federal Government uses. productivity since the mid-1990s has been in sectors that either intensively use or produce information technologies. Public support is necessary in some important areas. Doubling the spectrum for wireless broadband will 4 Jorgenson et al. A large body of research has linked economic growth in recent decades with ICT expansion. Sadun. Similarly. Roller and Waverman (2001) estimate that one-third of the growth in per capita GDP in 21 developed economies from 1970 to 1990 is attributable to investments in telecommunications infrastructure. Improving the Quality of Life through Smart Regulation. more than doubling between 2009 and 2010. total capital spending by wireless telecommunications carriers has exceeded $20 billion in each year since 2000 (U. To accommodate this surging demand. both for licensed and unlicensed use.S. productivity growth since 1995 can be attributed to ICT. Census Bureau 2011).4 Wireless broadband is a form of ICT that can transform many different areas of the American economy by providing a platform for innovation. wireless carriers will need access to additional spectrum. The proposal aims to nearly double the spectrum available for wireless broadband in the next 10 years by freeing up 500 megahertz (MHz) of spectrum currently allocated to other uses.S. both of which are discussed in this chapter in the section on infrastructure. Another important way that the government can help to support the growth of wireless broadband is by making more spectrum available. in part by finding ways to make more efficient use of the remaining Federal and shared spectrum.

energy markets are subject to market failures. While the market provides key signals that greatly influence energy production and consumption decisions. The President has outlined a Blueprint for a Secure Energy Future to guide the Nation’s transition to a clean and secure energy economy. Those include goals to continue focusing on increasing responsible domestic oil and gas production. cheaper. clean coal. or reduce savings. providing support for important goals. causing them to reduce their consumption of other goods and services. Elevated global energy prices can.  A strategy that’s cleaner. and full of new jobs. natural gas. and establishing rules of the road that promote a cleaner and more secure energy future. promoting clean energy through investments in innovation and infrastructure. and a nationwide interoperable wireless broadband network for public safety. “This country needs an all-out. and renewables like wind and solar—to 80 percent by 2035. Treasury. all-of-the-above strategy that develops every available source of American energy. so the government has an important role to play in guiding the mix of energy supplies and uses that is best for the Nation. The government also has a role to play in increasing energy security. to reduce foreign oil imports by a third by 2025. To ensure that commercially held spectrum is reallocated efficiently and that the economic benefits are widely shared. President Obama. reducing air pollution. R&D for emerging wireless technologies.also require changes in commercially licensed spectrum. The auctions will also generate substantial revenues for the U.” The President has outlined goals that will set the United States on a path toward lowering its dependence on oil and developing cleaner domestic energy sources that reduce emissions of air pollutants. noted that. unexpected energy supply disruptions in the form of price increases. Clean & Secure Energy In his State of the Union address. Enhancing Energy Security The short-run demand for energy is relatively inelastic. Shifting to wireless broadband a portion of the spectrum now licensed for over-the-air television broadcasting will yield substantial economic benefits.S. and to increase the share of electricity generated from clean energy sources— including nuclear power. These auctions will allow existing licensees to receive a portion of the auction proceeds in exchange for voluntarily making their spectrum available for wireless broadband. so consumers will bear the brunt of sudden. 252 | Chapter 8 . including deficit reduction. the Administration supports using “voluntary incentive auctions” to guide the reallocation.

Annualized costs of the rule are expected to be between $6. the President has proposed transforming the individual tax credit for consumers who purchase advanced vehicles into a rebate. for a five-year period. and save consumers $1.5 barrel per thousand dollars of GDP in 2010).7 trillion in fuel costs.4 billion and $6. Additional annualized benefits from improved health. Thanks Improving the Quality of Life through Smart Regulation. Oil consumption per thousand dollars of real GDP has fallen by about half since 1980 (from almost one barrel per thousand dollars of GDP in 1980 to about 0. the Administration has pursued a course that reduces demand for petroleum. building on the successful programs for the 2011 and 2012–2016 model years. Clean Energy. Taken together. slow economic growth. the President is committed to advancing the responsible production of domestic oil and natural gas resources.3 billion and $26.6 billion. such as natural gas and electric trucks. Under the proposed rules. Reducing Demand During the past year.in turn. In November. | 253 Innovation. annualized fuel savings are expected to range between $20. These standards will save consumers money at the pump.  Despite progress in reducing the “petroleum intensity” of the economy. Promoting the development of alternative energies and energy-efficient technologies reduces the economy’s vulnerability to international energy supply shocks and improves energy security. dramatically reduce the Nation’s dependence on oil.2 million barrels per day by 2025. and State of California regulations will be harmonized and auto companies will be able to rely on well-defined regulatory targets to help steer their investments in producing advanced vehicles. and lower GHG emissions are expected to range between $5. and Public Investment . fuel economy standards from the DOT. Increasing Domestic Energy Supplies The Nation has pursued strategies to safely increase domestic energy sources. greenhouse gas (GHG) emission standards from the EPA.4 billion.4 billion and $10. In addition. EPA and DOT proposed new fuel economy standards for vehicle model years 2017–2025.7 billion (2009 dollars). As part of this focus. vulnerability to increases in the global market price of crude oil remains. and increase investment in new technologies and new manufacturing here in the United States. We can improve energy security by lowering demand for petroleum and by increasing the supply of domestic conventional and alternative energy. The President has also proposed a new tax incentive to offset half of the incremental cost of dedicated alternative-fuel commercial vehicles. the fuel economy standards proposed for model years 2011–2025 are projected to reduce oil consumption by over 2. greater energy security.

the Administration announced a partnership between the Departments of Agriculture. mercury and other toxic air pollution and generate between $27 billion and $80 billion in net benefits annually by improving people’s health. The Mercury and Air Toxics Standard (MATS) regulation announced by the EPA in December. including: exploring home grown technologies and methods to improve safety and environmental performance of shale gas production. In 2011.S. respectively (EIA 2012). to create a market for innovative technologies that will encourage the deployment of clean energy and the benefits that come with it. import dependence declined even further. ethanol and biodiesel production in the United States were estimated by the U. the United States relied on net imports for less than half of the oil we consumed. and requiring disclosure of chemicals used in hydraulic fracturing on public lands. dependence on foreign oil is being reduced. the President has proposed a Clean Energy Standard (CES). in 2011. Reducing Emissions The Administration has taken historic steps to address air pollution from stationary sources such as aging coal-fired power plants. 254 | Chapter 8 . To help ensure safe and responsible development of abundant natural gas resources. encouraging greater use of natural gas in transportation. The United States has also increased the amount of ethanol and biodiesel blended into the nation’s fuel supply. In 2010. In addition.to higher domestic production and lower imports. and we are on track to exceed that goal. the development of unconventional oil and gas deposits across the United States illustrates how American enterprise and innovation in horizontal drilling and hydraulic fracturing. for the first time in over a decade. have unlocked vast new domestic oil and gas resources. such as reduced emissions of air pollutants and greenhouse gases. will reduce emissions of sulfur dioxide. Energy Information Administration (EIA) to be roughly 14 billion gallons and 920 million gallons. substitutes for diesel and jet fuel. As Box 8-1 describes. In March 2011. That represented about 10 percent of U. the Administration is taking a number of steps. gasoline demand and 2 percent of diesel demand for 2011. for example. Since 2007. combined with government-supported research.S. the President set the goal of breaking ground on at least four commercial-scale cellulosic or advanced bio-refineries over the next two years. to 45 percent. Energy and the Navy to invest in multiple domestic commercial or pre-commercial scale bio-refineries to produce advanced “drop-in” biofuels. the United States has been the leading natural gas producer in the world. In addition.

and Public Investment . Innovation and adoption of new technologies will be critical to improving energy efficiency and shifting the Nation’s energy use toward low-carbon energy generation. which involves creating markets for clean technologies that are ready to deploy and funding cutting-edge research to deliver the next generation of technologies. or sell them to other companies. 80 percent of the country’s electricity would be generated from clean sources. and microorganisms that produce liquid biofuels from sunlight and carbon dioxide. so that by 2035.A CES works by giving electric power plants clean energy credits for electricity they generate from clean energy. investments in modernizing the energy infrastructure with advanced technologies will help to increase efficiency and reduce waste. The Obama Administration funded ARPA-E for the first time with $400 million as part of the Recovery Act. EIA (2012) expects per capita emissions of carbon dioxide in the United States to fall over time. by an average of 0. focusing on transformational energy research that the private sector by itself is unlikely to support. along with subsequent appropriations. an organization modeled after the Defense Advanced Research Projects Agency. Under the President’s proposal. Because of cleaner power plants. Supporting Clean Energy R&D and Infrastructure Public investments in innovation and infrastructure are critical to solving the twin objectives of increasing energy security and reducing GHG emissions. Private-sector investment in energy R&D and infrastructure will be less than optimal because the positive externalities from such investments prevent private firms from fully capturing the benefits. Utilities that serve retail customers are responsible for making sure they have enough clean energy credits to meet their target. | 255 Innovation. Support for innovation is a key piece of the Blueprint strategy. batteries that convert wind power into a steady power source. has been used to support about 180 projects. In addition. and appliances. ARPA-E provides funds to develop advanced energy technologies that reduce energy-related emissions and increase energy efficiency. including technologies for plug-in electric vehicles. Clean Energy. Utilities that generate more clean energy than needed to meet their target can bank their extra credits for later use. This funding. and more energy-efficient vehicles. Among the DOE offices that provide support for clean energy innovation is the Advanced Research Projects Agency-Energy (ARPA-E). This flexible approach would harness privatesector incentives to minimize the cost of generating electricity from clean energy sources. The President’s Fiscal Year 2013 Budget proposes $350 million in new funding for ARPA-E to continue Improving the Quality of Life through Smart Regulation.8 percent a year between 2010 and 2035. greater use of alternative fuels. buildings. the target would increase over time.

Box 8-1: Developing Domestic Energy: Shale Gas and Shale Oil Shale gas and shale oil (also known as “tight” oil) are deposits trapped inside formations of fine-grained sedimentary rocks. Horizontal drilling allows multiple wells to be completed from one drilling pad by drilling vertically for several thousand feet and then drilling horizontally. up from 23 percent in 2010 (EIA 2012). increasing energy independence. We reduced our imports of crude oil. Between 1978 and 1992. chemicals and sand into the well to fracture the surrounding rock. In addition. But it is also due in part to R&D investments made by the Department of Energy (DOE). the DOE invested about $137 million in the Eastern Gas Shale program. Now they are being profitably extracted. EIA (2012) projects that domestic oil production will continue to increase through 2020. The President has been clear about the importance of domestic oil and gas production. By 2035 shale gas is expected to make up 49 percent of total U. The percent of new wells directed to shale gas and oil deposits surged from 13 percent in 2005 to 57 percent in 2011. Hydraulic fracturing pumps water. which made it profitable for oil and gas companies to pursue higher cost reserves. or shale. Domestic oil production also grew in 2009 and 2010. leading to a boom in production from these unconventional oil and gas deposits. From 2006 through 2010 the average annual growth rate of shale gas production was 48 percent. allowing more gas and oil to be captured (see figure). from 10. in part due to horizontal drilling methods.9 million barrels per day in 2011. We are also exporting more refined petroleum products than ever: between the first half of 2009 and the first half of 2011. This led to a 67 percent drop in prices charged for natural gas used to generate electricity and a 34 percent decline in residential natural gas prices. 256 | Chapter 8 . That dramatic increase is in large part due to rising energy prices in the early 2000s. releasing trapped natural gas and oil. an increase valued at more than $35 billion (see Chapter 5).1 million barrels per day in 2005 to an estimated 8. which helped develop and demonstrate directional and horizontal drilling technology. including the central role responsible natural gas development will play in our energy future. exports of mineral fuels and oils jumped 150 percent. As recently as a decade ago many of these deposits were viewed as uneconomical to extract. natural gas production. That growth helped improve America’s energy security. the United States is at the forefront of exporting extraction technologies and related services to other countries interested in tapping their own unconventional oil and gas reserves.S. Increased supply has caused wholesale natural gas prices to fall more than 75 percent from their peak in October 2005 through October 2011. and supporting jobs.

Furthermore. particularly the use of hydraulic fracturing. For example. such as the chemical and plastics sectors that use natural gas as an important input. Improving the Quality of Life through Smart Regulation. Such tremendous growth also comes with the responsibility to develop these new resources safely. Clean Energy. the Department of the Interior. processing. and distribution of oil and natural gas products. downstream industries. and Public Investment . the DOE is actively involved in research exploring improved methods to treat the water used in shale gas extraction so it can be reused or disposed of safely. The industry also indirectly supports many more jobs. A number of concerns have been raised regarding the potential adverse environmental impacts associated with current shale gas extraction practices. and the Environmental Protection Agency to assess and address potential impacts of natural gas and oil development using hydraulic fracturing and to identify innovative ways to reduce adverse environmental impacts. | 257 Innovation. Horizontal Well (A) vs. including jobs associated with the transportation. Vertical Well (B) Source: EIA (1993). The Obama Administration is taking a number of steps to ensure that the United States can realize the economic benefits of its natural gas resources in a an environmentally responsible way. The Administration is committed to ensuring that natural gas and oil extraction will be pursued in a prudent manner that is safe for the environment. Bureau of Labor Statistics (BLS) data show that oil and gas extraction and drilling services jobs have grown by 100.This expansion of natural gas and oil production has also supported jobs for thousands of Americans. An important part of this effort consists of targeted research coordinated between the DOE. benefit from the expanded supply of natural gas.000 between 2005 and 2010. with much of that increase tied to horizontal drilling for shale gas and oil.

An important part of the effort to transition to a clean energy future is the “SunShot Initiative” announced by the DOE in February 2011. “A Policy Framework for the 21st Century Grid: Enabling Our Secure Energy Future. carbon capture and storage. Achieving the goal will require major innovations in the ways solar technologies are conceived. SunShot has the potential to increase the share of electricity generation from solar photovoltaics to 15 percent by 2030. making unsubsidized solar energy cost-competitive with other forms of energy. According to DOE (2011) analysis. energy storage. and advanced biofuels. The Rapid Response Team for Transmission is focused on seven pilot project transmission lines which cross through 12 states. These projects were selected from lists produced through independent stakeholder processes. monitoring. This initiative supports innovation to reduce the cost of solar energy by 75 percent by 2020. by reducing the cost of solar electricity to about six cents per kilowatt hour. an important way to improve energy efficiency.” outlining policy recommendations that build on existing smart-grid investments to foster continued modernization of electricity infrastructure. the White House released a report by the National Science and Technology Council. and control systems. Transforming the electricity infrastructure into a “smart grid” could lead to substantial cost savings and efficiencies. manufactured.to support breakthrough clean energy research in areas such as solar energy.5 billion in grid modernization investments. matched by contributions of more than $5. and improve the integration of renewable energy sources on the grid. the Administration announced a number of new initiatives to support the development and deployment of smart-grid technologies. Building on these investments. As the United States transitions to a clean energy future. The agencies participating in the Renewable Energy Rapid 258 | Chapter 8 . designed. In addition to efforts to support smart grid development. reliability. and installed. When built. one for transmission and one for renewables. the Administration has announced efforts to improve Federal coordination and ensure timely review of proposed renewable energy projects and transmission lines through the formation of two interagency Rapid Response Teams. and security is to upgrade the electricity transmission and distribution infrastructure to make greater use of advanced technology and to incorporate real-time communications.5 billion from the private sector. help avoid blackouts. these seven pilot projects will help increase electric reliability and integrate renewable energy into the grid. SunShot is investing in solar technology and manufacturing improvements and working to reduce installation and permitting costs. The Recovery Act included $4. including $250 million in loans to deploy smart-grid technology in rural areas under the Rural Utility Service. In June 2011.

8 billion hours of travel delay and 1. reaching more than $6 trillion in 2009 (the most recently reported year). At the same time. The greatest percentage increase in mileage for any mode of transportation from 2004 to 2009 was in light transit rail track. particularly urban roadways. the infrastructure that supports it must grow as well. transportation capital stock steadily increased from 2004 to 2009. Moreover. for an aggregate congestion cost of more than $100 billion. information and communications networks.S. As a result. followed by commuter rail track. slow Internet connections. which increased by 10 percent. If investments to maintain.S. Such disruptions impose substantial economic costs through wasted time and resources and diminished quality of life.200 bridges—more than 10 percent of all U. Infrastructure As emphasized. Lomax. an increase of more than 25 percent over 2000 in constant (inflation-adjusted) dollars (Schrank. As economic activity grows. The State of the Nation’s Infrastructure The value of the U.Response Team have all made significant strides toward the deployment of renewable energy through the development of better government processes to issue permits for renewable energy projects. Moreover. energy infrastructure is critical for developing our domestic clean energy potential. parks. The current disappointing state of transportation infrastructure is partly reflected in rising levels of congestion on many parts of the transportation system. physical infrastructure deteriorates over time and requires ongoing investment for maintenance. efficient infrastructure investments can have a significant positive impact on economic welfare. ports and airports.9 billion gallons of wasted fuel. upgrade. railways. according to the Bureau of Transportation Statistics. and Eisele 2011). In 2008. | 259 Innovation. urban areas could grow by Improving the Quality of Life through Smart Regulation.S. According to the Texas Traffic Institute’s (TTI) Urban Mobility Report. which increased by 24 percent. and schools. the result is congestion: too many hours sitting in traffic or in an airplane stalled on the tarmac. and expand infrastructure do not keep pace with the growth in demand. too many dropped calls. bridges—were rated as structurally deficient. Infrastructure also includes transportation systems like roads. in 2009 nearly 71. TTI projects that the total cost of congestion in U. nearly 21 percent of urban interstate highways and 35 percent of urban collector roads were in poor or mediocre condition. and other public facilities. If current trends continue. and Public Investment . traffic congestion in urban areas in 2010 accounted for 4. Clean Energy. the overall condition of many parts of the Nation’s transportation infrastructure remained disappointing.

Power outages and interruptions have become more frequent and are now affecting more consumers. particularly in rural areas. By 2008. growth in peak demand for electricity has exceeded transmission growth by almost 25 percent every year since 1982. many households. Overall. compared with other OECD countries.000 or more consumers in the second half of the 1990s than in the first half. At the same time. For example. compared with 9 percent and 5 percent. wireless providers will offer such service to about 94 percent of the population. Americans’ satisfaction with public transit ranks 25th out of 32 OECD nations.S. 260 | Chapter 8 . evidence is growing that the United States has been underinvesting in many kinds of infrastructure. Stutzer and Frey 2004). have concluded that the United States faces a substantial need for infrastructure investment over the next five years. Studies of how individuals experience the activities of daily life have found that commuting is among the least enjoyable and most stressful (Kahneman et al. Described by the Federal Communications Commission as “the great infrastructure challenge of the early 21st century” (FCC 2010). According to the DOE (2008). the Nation invests annually approximately 2 percent of GDP on infrastructure. As discussed. power outages and interruptions cost Americans an estimated $150 billion each year. 95 percent of the U. respectively. broadband’s growth over the past decade has been substantial. according to the Gallup World Poll.a further 32 percent in real terms by 2015. 2011). for China and Europe. In addition. Americans are relatively dissatisfied with their local public infrastructure systems. Although the optimal level of infrastructure investment is difficult to quantify precisely. with investment in capacity generally lagging behind growth in demand. the evidence strongly suggests that the United States has not been investing adequately to meet future infrastructure needs. and industry analysts project that by 2013. and satisfaction with roads and highways ranks 17th out of 32. The U. Broadband is another important category of infrastructure where the United States faces significant investment needs. (Atkinson et al. including the American Society of Civil Engineers (2009). electricity grid is also showing signs of strain. These estimates likely understate the real effects of congestion on welfare because they do not take into account the reduction in quality of life that results from additional time spent commuting. continue to have Internet access only at much slower speeds. Many observers. population had access to wired broadband service in 2010. 2004. perhaps the most significant challenge to the Nation’s broadband infrastructure is the threat of growing congestion on wireless networks. and the average outage affected 15 percent more consumers. Thanks to significant investments by telecommunications and cable companies.S. The DOE reported that 41 percent more outages affected 50.

and promote rapid economic growth. In part. In addition to their long-run benefits on economic growth and productivity. even if there were a dedicated revenue stream from users. In choosing how much public support for infrastructure to provide and how to finance it. Treasury-CEA report (2010). These short-run effects depend on the state of the overall economy. When the economy is operating at or close to its full potential. More recent studies have found further evidence that public infrastructure investment often offers considerable returns. Through these effects. investments in infrastructure can also provide short-run benefits during times when economic resources are underutilized. the new employment generated by infrastructure projects generally requires diverting workers from other productive activities. are typically owned and financed by government. increase productivity. The most important potential positive spillover effect is that many infrastructure investments improve economic efficiency. in some cases higher than those from private capital investment. “in addition to providing immediate economic stimulus. faces questions about how best to balance the roles of the public and private sectors in infrastructure investment. including most roadways and public transit systems. investments in infrastructure can substantially improve the long-run performance of an economy. as a large body of research has shown. but the opportunity costs of Improving the Quality of Life through Smart Regulation. these patterns of ownership reflect historical accident. | 261 Innovation. and whether important positive spillover benefits from infrastructure investment would prevent private investors from fully capturing the overall economic benefit.S. Clean Energy. are largely privately owned. other kinds. public infrastructure investment has a significant positive effect on output and growth. and the expenditure of public funds may similarly divert funds from other investment opportunities. This research is reviewed in a U. by supporting employment in construction and in materials production. through tolls or user fees. Munnell (1992) reviews the evidence on infrastructure investment and economic growth and concludes that.Government and Private Sector Roles in Infrastructure In the United States some kinds of infrastructure. Certain infrastructure investments may still be justified during such times. For example.” Gramlich’s (1994) review of the same research cautions that the rates of return on investments vary widely across different types of infrastructure and highlights the need for policies that direct public investment toward projects with the highest social return. and Public Investment . Two key economic principles are whether it is costly or difficult for a private owner or investor to earn a return by monetizing access to the network. like other nations. the United States. such as freight railways and telecommunications networks.

By contrast. there is little risk that Federal investment will crowd out private investment. with an industry unemployment rate of 16. Recent macroeconomic research confirms the intuition that the expansionary effect of Federal investment spending is likely to be significantly greater during times of substantial slack in the economy. today the economy is gradually recovering from the most serious economic crisis since the Great Depression and is operating significantly below its full potential. In these circumstances. A common theme in these alternative approaches is the goal of attracting more private capital for direct or indirect investment in transportation infrastructure. postponing necessary infrastructure investments until after the economy has rebounded would have the undesirable effect of occupying productive resources just when the private sector needs them most. have been forced to cut back on spending because of revenue shortfalls since the recession of 2007–09. Financing Infrastructure Investments Government funding for infrastructure draws on a number of different sources. Increased reliance on the private sector to finance transportation infrastructure investments can help increase funding for those investments and may also improve the efficiency of project selection and drive greater returns on investment.4 percent. with interest rates exceptionally low. For example. which typically fund a significant portion of infrastructure spending. Similarly. and more infrastructure investments will yield a positive rate of return. Recent years have seen increased interest in alternative financing mechanisms that may expand the pool of available capital and improve the efficiency of project selection. Auerbach and Gorodnichenko (2010) find that expansionary fiscal policy is substantially more effective during recessions than during expansions. over 1. often from user fees or other forms of usage-based pricing. For example. Moreover. with so many resources sitting idle. with unemployment still unacceptably high. including Federal disbursements of Highway Trust Fund revenues and State and local issues of municipal bonds. With excess capacity widely available in the economy. to attract private financing. increased public spending on construction materials and increased private spending by newly hired workers are unlikely to divert goods or materials from other uses.diverting economic resources from other activities reduce the net benefits of such investments. many projects incorporate a dedicated revenue stream. Because these revenue streams 262 | Chapter 8 . In 2011. the opportunity costs of using those resources for infrastructure investment are greatly reduced. Overall. State and local governments.8 million workers in the construction industry were jobless. public infrastructure projects create net jobs for workers. Moreover.

The partnership. In particular. Clean Energy. bridges. pension funds. and two territories. the District of Columbia.S. Introduced in 2009. Treasury Department pays a direct subsidy to the issuer to offset borrowing costs for public capital infrastructure projects. | 263 Innovation. In the United States. and a National Infrastructure Bank that has the potential to leverage private capital into projects of national significance. In general. formed to develop and implement a set of multimodal infrastructure improvements to untangle congestion choke points in the Chicago transportation hub. for new public capital infrastructure projects such as schools. Metra commuter rail.275 transactions in all 50 states.S. which deliver a borrowing subsidy only indirectly through the Federal tax exemption to investors for interest earnings. greater safety. important public benefits can be realized through investments that improve the flow of freight across the railway network. they can help to guide capital toward the most efficient projects. and many other institutional investors. the City of Chicago.link investment returns directly to user demand. even in a network based on private ownership. BABs are taxable bonds for which the U. They have supported more than $181 billion of financing. and Public Investment . including nonprofits. most investment in freight railway infrastructure is privately financed. because it is largely owned by the rail carriers themselves. innovative financing mechanisms can engage the private sector in infrastructure investments with important public benefits. include reduced highway congestion. Since the inception of the program in April 2009. this chapter considers three innovative approaches to private-sector engagement: public-private partnerships. Public-Private Partnerships. For example. involves significant financial cooperation between the private railroad industry and public government entities. The benefits of diverting freight efficiently from trucks to rails. and reduced pollution. particularly in the area of rail freight. Public-private partnerships between State and Federal agencies and the rail carriers can be an efficient way to promote such investments. and Class I railroad companies. BABs have had a very strong reception from both issuers and investors. An empirical study by the Treasury Department (2011) found that State and local governments that issued BABs realized considerable savings Improving the Quality of Life through Smart Regulation. and hospitals. These bonds can function as an attractive alternative to municipal bonds. BABs appeal to a broader class of investors than tax-exempt municipal bonds. for example. However. Department of Transportation. the Chicago Region Environmental and Transportation Efficiency program is a public-private partnership between the U. Build America Bonds. the State of Illinois. in 2. Build America Bonds (BABs) as an alternative to municipal bonds that can attract new sources of private funding into the market for financing infrastructure projects.

highway. infrastructure investment. including state-level infrastructure banks and bonds issued by State and local governments. The Recovery Act of 2009 provided over $48 billion to fund transportation infrastructure investments. National Infrastructure Bank. to commemorate the breaking of ground on the 10. Although the initial program expired at the end of December 2010.3 billion to construct new runways and improve air traffic control facilities and equipment.relative to the cost of issuing tax-exempt bonds. as President Obama has proposed as part of the American Jobs Act. the National Infrastructure Bank would be a valuable complement to existing sources of funding and would improve the efficiency of U. President Obama visited Columbus. the Federal Highway Administration announced that it had finished obligating more than $26 billion of that amount for 12. It would fill in an important gap in the Nation’s infrastructure funding system by focusing on projects of national or regional significance. Another new approach to increasing private-sector participation in infrastructure investment is a National Infrastructure Bank. The proposed bank would help increase overall investment in infrastructure by attracting private capital to co-invest in specific infrastructure projects and would help improve the efficiency of infrastructure investment by relying on a merit-based selection process for projects. Recent and Current Federal Infrastructure Initiatives Infrastructure investment has been an important priority throughout the Obama Administration. This subsection reviews some of the Administration’s other recent and current initiatives to support infrastructure investment. whose effects cross over state and jurisdictional lines. The study also found that expanding the BABs program would lead to continued savings on borrowing costs for State and local governments. the bank would finance no more than 50 percent of the total costs of any project. Such projects are often at a disadvantage under current financing mechanisms. The Recovery Act also provided funds for investments in the Nation’s air and sea transportation infrastructure. Many of these 264 | Chapter 8 . The Administration has also proposed expanding the program to include a broader range of eligible municipal projects.000 road.S. As discussed above. the President’s Fiscal Year 2013 Budget has proposed extending the program for two years at a subsidy rate of 30 percent and extending it permanently thereafter at a revenue-neutral subsidy rate of 28 percent. and bridge projects. the modernization of the electricity grid is a key element of the effort to transition to a clean energy future. and in June 2010. Ohio. As a result. Transportation. To ensure substantial leverage of private capital. In 2010. including $1.000th such project. as well as more than $18 billion to support transit and high-speed rail.

improved highway safety. which will provide broadband access for 2. to keep existing and planned transportation projects moving forward. Broadband. The proposal includes investments to speed up the permitting process. RUS has awarded more than $3. President Obama has proposed $50 billion in immediate investments in transportation infrastructure as part of the American Jobs Act. 2012.and other recently completed transportation infrastructure investments have already produced substantial economic benefits for the American people. including $4. Recognizing this need. The President also supports a robust renewal of surface transportation programs. now scheduled to expire on March 31.800 applications requesting more than $52 billion in support for potential projects in all 50 states and territories. including schools.8 million households and 364. and health care facilities. and to modernize the air traffic system by investing in the Next Generation Air Transportation System. making first responders more effective when they are called on to cross jurisdictional lines. libraries. The Recovery Act provided $7.7 billion for broadband infrastructure programs at the Department of Commerce’s National Telecommunications and Information Administration (NTIA) and $2. to support innovative multi-modal transportation programs. to repair and modernize public transit systems. An interoperable network would also reduce the costs of the assorted interoperability measures now being used. to make highways safer and more efficient. These two programs together received more than 3. As part of the National Wireless Initiative. In addition. including increased flows of traffic in congested areas. Clean Energy.2 billion to upgrade the Nation’s broadband infrastructure. and Public Investment .5 billion in grants and loans for 320 broadband projects. there is still a pressing need to revitalize America’s infrastructure networks. Developing and deploying such a system would help enable interoperability at the national level. ranging from swapping radios to Improving the Quality of Life through Smart Regulation.000 community institutions. and rehabilitation and maintenance of aging infrastructure. expansion of public transit service into new communities. When the final awards were announced in September 2010. | 265 Innovation. NTIA had awarded approximately $4 billion for 233 projects throughout the country.000 businesses in rural areas.000 miles of broadband infrastructure and will improve broadband access for approximately 24. the President has called for investment in a state-of-the-art nationwide wireless broadband network for public safety communications. to improve intercity passenger rail service and airports.5 billion for the Department of Agriculture’s Rural Utilities Service (RUS) to expand broadband access in rural areas. The funds will support the construction or upgrade of approximately 120. or NextGen. Despite these substantial achievements. to develop high-speed rail corridors.

using Internet-based gateways to patch together noninteroperable systems.” Spurred by the creation of new measurement techniques and the need to improve conventional measures of well-being. software and hardware developers will find it more economical to invest in innovative public safety devices and applications. eliminating duplicative operating and maintenance costs and enabling public safety entities to obtain commercially supplied devices and equipment at substantially lower cost than they can today. As this year’s Economic Report of the President suggests. innovation. several recent official efforts have aimed at expanding the boundaries of measurement of the quality of life. and putting into place the infrastructure that facilitates commerce and travel and raises productivity. improving safety and health. laying the groundwork for technological breakthroughs. the Federal Government helps Americans every day. and public investment. further enhancing the effectiveness of first responders. Moreover. The benefits of these activities are not fully reflected in standard measures of economic activity such as GDP. but they do significantly improve the quality of life and our economy. with clear. Finally. nationwide standards that help make public safety communication systems interoperable across jurisdictions and vendors. 266 | Chapter 8 . “progress in our understanding can only be based on our push for measurement of phenomena previously thought to be nonmeasurable. promotion of clean domestic energy. the first winner of the Nobel Prize in economics. further innovation and advances in measurement through improvements to traditional economic indicators and the development of new indicators of societal well-being will help bring about further improvements in the Nation’s quality of life and the economy. Conclusion Through smart regulation. commented that. Jan Tinbergen (1976). deploying a single nationwide network would realize important scale economies.

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A P P E N D I X A REPORT TO THE PRESIDENT ON THE ACTIVITIES OF THE COUNCIL OF ECONOMIC ADVISERS DURING 2011 .

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Chairman Katharine G. Member Activities of the Council of Economic Advisers During 2011 | 295 . Alan B.. as set forth in section 10(d) of the Employment Act of 1946 as amended by the Full Employment and Balanced Growth Act of 1978.letter of transmittal Council of Economic Advisers Washington. 2011 Mr. Krueger.C. D. Member Carl Shapiro. Sincerely. President: The Council of Economic Advisers submits this report on its activities during calendar year 2011 in accordance with the requirements of the Congress. December 31. Abraham.

McCracken Karl Brandt Henry C. Burns Neil H. 1981 . 1962 November 16. 1961 January 29.Council Members and Their Dates of Service Name Position Oath of office date Separation date Edwin G. 1962 February 15. 1963 September 2. 1959 January 29. 1972 July 23. Jacoby Walter W. 1961 October 31. Nordhaus Lyle E. Lewis Otto Eckstein Arthur M. 1975 January 20. Duesenberry Merton J. 1972 September 9. Clark Roy Blough Robert C.N. 1977 March 18. 1962 December 27. 1953 April 4. Okun James S. 1964 February 1. Peck Warren L. 1956 February 9. 1953 September 15. 1979 May 27. 1974 June 13. 1971 August 31. Whitman Gary L. Seevers William J. 1950 September 8. 1953 December 1. 1975 February 25. 1973 October 31. 1977 November 15. 1975 January 22. 1968 July 1. 1971 July 15. 1961 January 20. 1961 January 29. Stewart Raymond J. 1974 March 26. 1969 January 20. 1968 February 4. 1969 June 30. 1973 September 4. 1980 November 1. 1950 August 9. 1977 January 20. Nourse Leon H. 1956 November 1. 1964 July 31. 1949 May 10. Malkiel Charles L. Saulnier Joseph S. 1953 December 2. 1950 June 29. 1968 August 31. Heller James Tobin Kermit Gordon Gardner Ackley John P. 1953 August 20. 1949 John D. 1969 February 4. 1979 August 20. 1958 May 7. Fellner Alan Greenspan Paul W. 1971 March 13. 1952 January 20. 1969 December 31. Schultze William D. 1973 August 15. 1955 April 29. 1981 January 20. MacAvoy Burton G. 1958 January 31. 1969 January 1. 1959 January 20. 1980 January 20. Wallich Walter W. 1969 February 4. Turner Arthur F. 1977 June 6. 1968 January 20. 1956 May 2. McCracken Hendrik S. 1946 November 2. 1976 January 20. 1952 March 19. Eads Stephen M. 1946 August 9. 1955 December 3. Davis Paul W. 1953 February 11. 1968 February 2. 1966 February 15. 1955 January 20. Smith Paul W. 1964 May 17. 1966 January 20. Houthakker Herbert Stein Ezra Solomon Marina v. 1961 November 15. 1964 February 15. Gramley George C. 1955 December 3. 1946 May 10. 1975 July 22. 1964 November 16. 1973 April 15. 1961 August 3. 1981 February 4. 1977 March 18. Keyserling Chairman Vice Chairman Acting Chairman Chairman Member Vice Chairman Member Member Chairman Member Member Member Chairman Member Member Member Member Chairman Member Member Member Chairman Member Member Member Chairman Member Member Member Chairman Member Member Chairman Member Member Member Member Chairman Member Member Chairman Member Member Member Member August 9. Goldfeld 296 | Appendix A January 20.

2001 November 30. Taylor Richard L. 1989 June 9. 1993 April 22. 2007 January 20. Stiglitz Chairman Member Member Chairman Member Chairman Member Member Chairman Member Member Member Member Chair Member Member Chairman Member Member Chair Member Member Chairman Member Member Chairman Member Member Chairman Member Member Chairman Chairman Member Member Chairman Member Chair Member Chairman Member Member Member Chairman February 27. 2005 June 3. 2005 June 21. 1999 July 9. Abraham Carl Shapiro Alan B. 2006 July 11. 1981 October 14. 2009 January 20. 1986 February 2. 1995 June 30. 2009 September 10. 1989 November 13. Gregory Mankiw Kristin J. Blinder Joseph E. 1989 September 19. Yellen Jeffrey A. 1995 January 29. 1989 May 1. 2003 November 21. 1985 July 31. 1998 August 12. 1985 August 18. McClellan Randall S. 1997 August 3. Boskin John B. Marron Christina D. 1996 February 18. Krueger February 10. 1993 July 27. 1999 March 2. Bernanke Katherine Baicker Matthew J. 1993 July 27. Munnell Janet L. 2011 February 28. 1999 January 19. 1995 June 26. Weidenbaum William A. Rosen Ben S. 2001 February 28. 2005 February 27. Shaw R. 2003 November 13. Glenn Hubbard Mark B. 1993 August 2. 2003 February 18. 1991 February 5. Blank Martin N. Baily Robert Z. 1985 July 1. 2009 April 19. 1994 Martin N. 1981 June 12. 2006 July 17. 2005 November 18. 2005 June 10. 1991 November 13. 1988 January 12. Bradford Paul Wonnacott Laura D’Andrea Tyson Alan S. 1993 June 28. 1982 April 18. Baily Alicia H. 1999 May 31. 1982 July 10. 2011 November 7. 2001 January 12. 1989 October 3. 2010 March 11. Niskanen Jerry L. 2005 November 18. Lawrence Kathryn L. 2003 February 23. Jordan Martin Feldstein William Poole Beryl W. 2001 May 29. 1982 December 10. 1984 January 20. 2007 March 1. Romer Austan D. 2001 July 25. 2011 April 19. 1997 August 30. Slaughter Edward P. 2010 August 5. 1997 April 23. Lazear Donald B. Kroszner N. Schmalensee David F. 2011 Activities of the Council of Economic Advisers During 2011 | 297 . 2005 January 31. 1999 August 12. Goolsbee Cecilia Elena Rouse Katharine G. 2002 July 1. 2009 September 3. 2008 January 29. 2001 January 19. 2009 March 11. 2000 May 11. 1993 January 20. Frankel Rebecca M.Council Members and Their Dates of Service Name Position Oath of office date Separation date Murray L. 1996 August 1. 1991 January 20. 1997 October 22. Forbes Harvey S. Sprinkel Thomas Gale Moore Michael L. 1991 June 21. 1981 July 14. 1982 March 30. 2003 November 21. 1985 January 20. Mussa Michael J. 2011 August 25.

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Goolsbee resigned as Chairman on August 5. The Chairman of the Council Alan B. daily White House senior staff meetings. Gwinn Professor of Economics at the Booth School of Business. He also meets frequently with members of Congress well as with business. He previously served as the Assistant Secretary for Economic Policy and Chief Economist at the U. 2011. Activities of the Council of Economic Advisers During 2011 | 299 .S Department of the Treasury. The Chairman is a member of the President’s Cabinet and is responsible for communicating the Council’s views on economic matters directly to the President through personal discussions and written reports. 2011. academic and labor leaders to discuss economic policy issues. He was confirmed by the Senate on November 3. and other senior government officials. The Council is comprised of a Chairman and two members appointed by the President and confirmed by the United States Senate. and other formal and informal meetings with the President. Cabinet meetings. budget meetings. Chairman Krueger represents the Council at Presidential economic briefings. a variety of inter-agency meetings. the Vice President. where he is the Robert P. 2011 to return to the University of Chicago. where he is the Bendheim Professor of Economics and Public Affairs.Report to the President on the Activities of the Council of Economic Advisers During 2011 The Council of Economic Advisers was established by the Employment Act of 1946 to provide the President with objective economic analysis and advice on the development and implementation of a wide range of domestic and international economic policy issues. Krueger was nominated as Chairman of the Council by the President on August 29. Austan D. Chairman Krueger is on leave of absence from Princeton University.

unemployment insurance.S. Abraham served as the Commissioner of the Bureau of Labor Statistics from 1993 to 2001. Abraham is on a leave of absence from the University of Maryland.S. the Treasury Department. including foreclosure mitigation and prevention and refinancing. Dr. Senate as a Member of the Council on April 14. Areas of Activities A central function of the Council is to advise the President on all economic issues and developments. regional development. and policies to promote the international competitiveness of American manufacturing companies. college affordability. Among the specific economic policy areas that received attention in 2011 were: housing policies. implementation of the Affordable Care Act. Dr. Shapiro served from 2009 to 2011 as Deputy Assistant Attorney General for Economics at the Antitrust Division of the United States Department of Justice. The Council 300 | Appendix A . as with the two prior years. Dr. where she is a faculty associate in the Maryland Population Research Center and a professor in the Joint Program in Survey Methodology. income inequality. Shapiro is on leave from the University of California at Berkeley.The Members of the Council Katharine G. and other officials and engages in discussions on numerous policy matters. Dr. the State Department. Senate as a Member of the Council on April 14. the Council coordinates with other units of the White House. 2011. regulatory measures. individual and corporate taxation. small business lending. 2011. The Council works closely with various government agencies. intellectual property and innovation. and the Federal Reserve on matters related to the global financial system. White House senior staff. where she is the Lawrence and Shirley Katzman and Lewis and Anna Ernst Professor in the Economics of Education and Professor of Economics and Public Affairs. including the National Economic Council. Carl Shapiro was confirmed by the U. job training. Abraham was confirmed by the U. advising the President on targeted policies to spur job creation and evaluating the effects of the policies on the economy have been a priority. trade policies. In the past year. the Commerce Department. the Office of Management and Budget. infrastructure investment. where he is the Transamerica Professor of Business Strategy at the Haas School of Business and Professor of Economics in the Department of Economics. In the area of international economic policy. Rouse resigned as Member of the Council on February 28 to return to Princeton University. Cecilia E.

and December. participating in the Trade Policy Staff Committee and the Trade Policy Review Group. helping to examine the ways in which exports may support economic growth in the years to come. and consideration of future policies. The Council. the Council released a report on U.  and   the  G-­8  Summit  in  Chicago. The Council prepares for the President. Chairman Krueger has also been preparing monthly briefings on the state of the economy.  Mexico. the Vice President. trade policies. and almost-daily memos on key economic data releases. and Council members and staff participate actively in working-party meetings on macroeconomic policy and coordination and contribute to the OECD’s research agenda.S. Quarterly reports to Congress on the effects of the Recovery Act on overall economic activity were issued in March. The Council was also the primary contributor to White House reports released on educational Activities of the Council of Economic Advisers During 2011 | 301 . The Council is a leading participant in the Organisation for Economic Co-operation and Development (OECD). In June. and government officials from other countries to discuss issues relating to the global economy. including leading private sector forecasters and other government agencies.S. and the White House senior staff a daily economic briefing memo analyzing current economic developments. an important forum for economic cooperation among high-income industrial economies. July. reviews of current U. consulting with a wide variety of outside sources. The Council was an active participant in the trade policy process.  The Council provided analysis and opinions on a range of trade-related issues involving the enforcement of existing trade agreements.S. the Department of Treasury. Inbound Foreign Direct Investment. the Council participated on the Committee on Foreign Investment in the United States (CFIUS). The Council issued a series of reports in 2011. Krueger is chairman of the OECD’s Economic Policy Committee. Council Members and staff regularly met with economists. In the area of investment and security. economy. policy officials. and the Office of Management and Budget—the Administration’s economic “troika”— are responsible for producing the economic forecasts that underlie the Administration’s budget proposals. The Council initiates the forecasting process twice each year. reviewing individual cases before the committee.   The   Council’s   role   also   included   policy   development  and  planning  for  the  G-­20  Summit  in  Los  Cabos.  The Council also participated on the Trade Promotion Coordinating Committee. The Council coordinated and oversaw the OECD’s review of the U. Dr.also worked on several issues related to the quality of the data available for assessing economic conditions.

. . . . Chief of Staff Judith K. . . . . In December. . and is viewable on the Internet at www. Public Information The Council’s annual Economic Report of the President is an important vehicle for presenting the Administration’s domestic and international economic policies. . . . Chief Economist Steven N. . . . . . The staff at the end of 2011 was: Senior Staff David P. . . Hellerstein .gpo. . and regular updates on major data releases on the CEA blog. It is available for purchase through the Government Printing Office. . .gov/cea. . . . .technology in September and two more reports related to education in October—one on the effect the American Jobs Act would have on teaching jobs and another on college affordability. www. . . . . texts of speeches. . . . . . . Braun . the Council was the primary contributor to a White House report issued on the effects of temporary unemployment insurance extensions on the U. .S.gpo. economy. staff economists. The reports. the Council led the preparation of a White House report on the economic benefits of infrastructure.gov/economicindicators. . presentations to outside organizations. and written statements accompanying testimony are available at the Council’s website. Finally. . and the administrative and support staff. . . research economists.whitehouse. . . . research assistants. . . .gov/erp. Vandivier. which is available on-line at www. Director of Statistical Office 302 | Appendix A . Director of Macroeconomic Forecasting Adrienne Pilot . . In November. discussions with outside economists. . . The Council continued its efforts to improve the public’s understanding of economic developments and of the Administration’s economic policies through briefings with the economic and financial press. the Council publishes the monthly Economic Indicators. . The Staff of the Council of Economic Advisers The staff of the Council consists of the senior staff. . . . The Chairman and Members also regularly met to exchange views on the economy with the Chairman and Members of the Board of Governors of the Federal Reserve System. . . . speeches. . . senior economists. . and the Chairman and Members gave numerous public speeches. . . . The Council prepared numerous reports in 2011.

. . . . . . . . . . . . . . . . . . . . . . . International Finance and Innovation Activities of the Council of Economic Advisers During 2011 | 303 . . International Finance. . . . . . . . . L. Pierret . . . . . . . . . . . . . . . . . . . . Health. . . . . . . . . . . . . . . Health Seth H. . . . . Innovation. . . . . . . . . Macroeconomics Sandra M. . . . Innovation and Development Benjamin H. . . . Education. .Senior Economists Gene Amromin . . Borowitz . . . . . Environment. International Trade and Investment. . . . . . . Aks . . . . Labor and Education Daniel J. . . . . . . . . . . International Economics and Trade Julia H. . . . . . Industrial Organization. Public Finance. . . . Regulation Research Economists Pedro Spivakovsky-Gonzalez . . . . . . . . . Public Finance David Cho . Entrepreneurship. . . . Budget and Retirement Robert Johansson . . . Yoo . . . . . Housing. . . . . . . . . . . . . . . . . Werfel . . Entrepreneurship Colleen M. . . . . . Innovation. . . Tax. . . and Manufacturing Thomas C. . . Infrastructure. . . . . . Labor. . . . . International Finance. . Cramer . . . . . . . . . . . . . . . Buchmueller . . Labor. Health Lisa D. . . . . . . . . . . . . . . . . . . Macroeconomics Judd N. . . . . . . . . Agriculture. . . . . . . . . . . . . Energy. Stevens . . . . Regulation Carter Mundell . . . . . . . . . . . . Vine . . Peters . . . . Macroeconomics Research Assistants Matthew L. . . . . . . . . . . . . . . . . . Environment. . Harris . . . . . Levy . . . . Development. . . . . Branstetter . . . . . . Public Finance Lee G. . . Housing. . . . . . . Industrial Organization. Regulation Charles R. . . . . . . . . . Housing. . Energy. . . . . . . Environment. . . . . Labor and Immigration Reid B. Carey . . . . . Energy. . . . Cook . . . . . . . . . . . . Regulation Craig T. . . . . . . . . . . . . Macroeconomics Staff Economists Jeffrey A. . . . Education Andres Bustamante . . .

. Special Assistant to the Chairman Michael P. . . This includes financial management. Elizabeth Sundheim. Administrative Office The Administrative Office provides general support for the Council’s activities. Special Assistant to the Members Staff Support Sharon K. . Bourgeois . security. Information Management Specialist Office of the Chairman Andres Bustamante . . . . Jeanne Jeong. Duties include preparing the statistical appendix to the Economic Report of the President and the monthly publication Economic Indicators. . . . . . Daniel Seder. . . . Thomas . . Clare Quinn. . . . . . Rahul Garabadu. . . and fact-checking. Brian A. . information technology. . . . . . . . . operations of facilities. . and telecommunications management support. . . and produces statistical information for the Council. . . . Kuberka . Amorosi . . . Suril Kantaria. and Lucas Zucker. . .Statistical Office The Statistical Office gathers. The staff also creates background materials for economic analysis and verifies statistical content in Presidential memoranda. . . . . . . David Bard. . Sarah McGhee. . . ethics compliance. . . Special Assistant to the Chairman and Staff Economist Paige Shevlin . . . Statistical Analyst Lindsay M. . . . . . . . administers. The Office serves as the Council’s liaison to the statistical community. . Kuberka is on detail from the Census Bureau. dayto-day operations. . . . . . . . Director of Finance and Administration Doris T. human resource management. . . . Senior Economists Interns Student interns provide invaluable help with research projects. . . . . . Stein. Searles. . . . . . . . Benjamin Pyle. . Obafemi Elegbede. Dan Aloisio. . . . Sid Shankar. . . . . . . Jeremy Patashnik. Alex T. . . . . . . . . . 304 | Appendix A . Statistical Analyst Ms. . . . Interns during the year were: Noam Angrist. . . . Archana A. . . . travel. . Administrative Support and Executive Assistant to the Chief Economist. . . . . . . Juliette Lu. . . Snyder . . .

and Paul Smith (Federal Reserve Board). Thomas Davidoff (Sauder School of Business. James O’Brien. There were two retirements at the Council in 2011. and Kia McLeod. Matthew Magura (Department of Justice). and Matthew Tully all served in the Office of the Chairman and resigned in 2011 to pursue other endeavors. Hoan Soo Lee. Several long-term staff members departed as well. Shambaugh left his position as Chief Economist of the Council in June. Nicholas Mastronardi (US Air Force Academy). loyalty and diligence in serving the Council. Eric Lesser. Sayeh Nikpay. Their dedication. and he is presently on faculty at Georgetown University’s McDonough School of Business. Arik Levinson (Georgetown University). Aaron Chatterji (Duke Fuqua School of Business). Lisa Kahn (Yale School of Management). Branch who served as Executive Assistant to the Members. Those who served as research assistants at the Council and resigned were Ravi Deedwania. Mrs.Departures in 2011 Jay C. Benjamin F. staff and the people of the United States will be missed tremendously. with almost 20 of those years at the Council. Helen Levy (University of Michigan School of Public Health). Rogers devoted 30 years to working in the Executive Branch. and Owen Zidar. Brittany Heyd. Jones (Northwestern University. Branch devoted 34 years to working in the Executive Branch. with 25 of those years at the Council. Dagmara Mocala Mathews left her position as Program Analyst after almost 10 dedicated years of service in the Statistical Office. UBC). They are Rosemary M. The senior economists who resigned in 2011(with the institutions to which they returned after leaving the Council in parentheses) were: Chad Bown (World Bank). who served as the Administrative Officer and Lisa D. Nicholas Hagerty. In October. Meryl Holt. Chairs. Activities of the Council of Economic Advisers During 2011 | 305 . Members. Rogers. The staff economists who departed in 2011 were Douglas Campbell. Kellogg School). Ms. Nan Gibson left her position as Executive Director and Adam Hitchcock left his position as Chief of Staff in August. Jamin Speer.

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EMPLOYMENT.A P P E N D I X B STATISTICAL TABLES RELATING TO INCOME. AND PRODUCTION .

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.............. Contributions to percent change in real gross domestic product... 1963–2011 ........................................ 316 B–2.... value added... Chain-type quantity indexes for gross domestic product................. 336 B–15........ 341 B–20....................... 1963–2011... value added.............. 329 B–10.. in current dollars and as a percentage of GDP........................... 345 B–24.. costs. 342 B–21......... Gross value added and price............................................................ 1963–2011 ................ Real gross value added by sector...... and percent changes..... 1963–2011 ......... 1963–2011 ........... Real gross domestic product by major type of product.................................................... 343 B–22................... 322 B–6... and profits of nonfinancial corporate business................................. 340 B–19..... 1963–2011 ............................................................................................................... 1963–2011 ...... 321 B–5. Real private fixed investment by type.................................................. Real personal consumption expenditures.....................C O N T E N T S NATIONAL INCOME OR EXPENDITURE Page B–1.................................. 1995–2011 ....... 1963–2011 . 324 B–7... Gross value added by sector. 318 B–3................................. 1963–2011 ..... 1963–2011 ....... 328 B–9... 326 B–8................................... Real gross domestic product.. Real government consumption expenditures and gross investment by type................ Real gross domestic product by industry... 1963–2011 ........................... Quantity and price indexes for gross domestic product................................ 1963–2011 ........... 1995–2011 .................. 334 B–14............. Gross domestic product (GDP) by industry......................................... 344 B–23........... 1963–2011 ... 1963–2011 ...... 1963–2011 .......................... 1980–2010 .............. Private inventories and domestic final sales by industry............ Real private inventories and domestic final sales by industry.......................................................... Private fixed investment by type... 1980–2010 ... Foreign transactions in the national income and product accounts. Gross domestic product by major type of product............. 346 309 ................................................................. and percent changes...................................... 331 B–12................................. 332 B–13............... 337 B–16......................... Gross value added of nonfinancial corporate business.. 1963–2011 ........................ Percent changes in real gross domestic product....... 338 B–17.................. Government consumption expenditures and gross investment by type....................................... 320 B–4...... 1963–2011............ Chain-type price indexes for gross domestic product....... 1963–2011 ............... 1995–2011 .............. 339 B–18........... Gross domestic product...................... 1963–2011 .................. 330 B–11............ Personal consumption expenditures......................

...... 1963–2011 . Civilian labor force participation rate by demographic characteristic............................ 1997–2011 ................ 1963–2011.. Hours and earnings in private nonagricultural industries............ 1963–2011...... 364 B–39........................................ and per capita gross domestic product.. 367 B–42.................. 348 B–27....... Disposition of personal income................. 360 B–36........... selected data......... Unemployment insurance programs............... 371 B–46........ Gross saving and investment............... 349 B–28.. net national product.... and national income.. Civilian employment/population ratio by demographic characteristic................. selected years... business and nonfarm business sectors......................................................... 1965–2011 ........ 363 B–38....................... Population by age group.................... 375 B–49. 1962–2011 ........................... business and nonfarm business sectors..................... Relation of national income and personal income. 1980–2011 ... 1963–2011 ... Civilian employment by demographic characteristic........... 368 B–43... Civilian employment and unemployment by sex and age.......... 1972–2011 ................ 1963–2011..... 362 B–37. 365 B–40............ Changes in productivity and related data............ 1972–2011 .......... gross national product.............................. 356 B–33................ 1998–2010......... 369 B–44....................... 1995–2011 ....... National income by type of income........ 1963–2011 .................................................................... 355 B–32....................... 359 B–35..... 347 B–26...... Civilian labor force participation rate and employment/population ratio....... 352 B–30..... 1962–2011 . 366 B–41..... Median money income (in 2010 dollars) and poverty status of families and people........................ Relation of gross domestic product..... Sources of personal income..................................... Unemployment by demographic characteristic.................................... 354 B–31................................................ 1965–2011 ................. by major industry................. 358 POPULATION...................................... 374 B–48................................................................................ Employment cost index.......... private industry. 1965–2011...... 376 B–50.................. in current and real dollars.... 1963–2011 ....... Real exports and imports of goods and services....... 1967–2011 ............................................. 1972–2011 ....................NATIONAL INCOME OR EXPENDITURE—Continued B–25................... 1965–2011 ............................... Civilian unemployment rate by demographic characteristic... Civilian population and labor force........................................ Total and per capita disposable personal income and personal consumption expenditures................... WAGES.............. 350 B–29........................................ 1965–2011.. 372 B–47........... 1929–2011 ............. 377 310 | Appendix B ................................. 1965–2011 ................. Productivity and related data............................ 1939–2011 .......... 370 B–45................................ by race............. Civilian unemployment rate..................................... EMPLOYMENT............. Unemployment by duration and reason.. 1965–2011....................................... AND PRODUCTIVITY B–34. Employees on nonagricultural payrolls.................................

............. 1963–2011 .......... Bond yields and interest rates..................................................................... Consumer price indexes for commodities.................... 1965–2011 .................................. Changes in consumer price indexes for commodities and services.......... 385 B–59......................... 406 B–75....... Mortgage debt outstanding by holder.. Consumer credit outstanding............................................ Manufacturers’ new and unfilled orders. selected manufacturing industries..... 1954–2011 .................... and completed and houses sold......... 1968–2011 .............. 396 B–68....... 409 B–77.. 382 B–56..... Industrial production indexes...... 408 B–76.PRODUCTION AND BUSINESS ACTIVITY B–51........... Aggregate reserves of depository institutions and the monetary base...................................................................... 399 B–70.... 410 Contents | 311 ................ special groups................ and special groups.................................................. Consumer price indexes for major expenditure classes............ 1963–2011 ............. 388 B–62................. Money stock and debt measures........... services............ 1954–2011 ...................................... Mortgage debt outstanding by type of property and of financing............ New construction activity......... CREDIT. 1967–2011 ........... 1982–2011 ............. 395 B–67... 1972–2011 .................................... Industrial production indexes................ Manufacturers’ shipments and inventories................ Bank credit at all commercial banks.......... Producer price indexes for major commodity groups........................................ Industrial production indexes................................................................ 387 B–61................ 1972–2011 ..... 379 B–53.................................. 1960–2011 ......... authorized....... 393 B–66................................. 1968–2011 ................. 1963–2011 .. 400 B–71....... 1940–2011 ............. Consumer price indexes for selected expenditure classes............................................................... 1968–2011 ....... 390 B–63.. market groupings......... 391 B–64....... 386 PRICES B–60............... 383 B–57..................................... 402 B–72........................... 384 B–58... 1968–2011 .................. 381 B–55........................... Components of money stock measures.......................... New private housing units started........................ AND FINANCE B–69. 1970–2011 ........................ Manufacturing and trade sales and inventories................................... Credit market borrowing.......... 1970–2011 ....................... major industry divisions................. 403 B–73.............. 380 B–54...... 1940–2011 .......................................... Capacity utilization rates.. Producer price indexes by stage of processing................... 398 MONEY STOCK.............. 2003–2011 ... 1972–2011 ............................. Producer price indexes by stage of processing...... Changes in special consumer price indexes.. 378 B–52..... 1965–2011 ......... 1974–2011 .................... 1974–2011 ................... 1965–2011 ................... 404 B–74..... 1970–2011 ............... Changes in producer price indexes for finished goods................................... 1968–2011 .......... 392 B–65..........

416 B–84... and debt......................... U... 415 B–83.................................... 422 CORPORATE PROFITS AND FINANCE B–90. 432 B–100....... outlays........... 1973–2011......... Sales....... selected fiscal years.. outlays............ 429 AGRICULTURE B–97................ 423 B–91. 426 B–94... 428 B–96...... Relation of profits after taxes to stockholders’ equity and to sales.............. Federal and State and local government current receipts and expenditures.... 424 B–92............... national income and product accounts (NIPA)...................................... Corporate profits with inventory valuation and capital consumption adjustments.. Farm income... 427 B–95........................... 1950–2011................... fiscal years 2008–2013 ......... 1998–2011................................ Farm output and productivity indexes.......... national income and product accounts (NIPA)...... and stockholders’ equity......... by major type......................................................... surplus or deficit....... Corporate profits by industry......... 433 312 | Appendix B ...............S...... as percent of gross domestic product................ and surplus or deficit..... Maturity distribution and average length of marketable interest-bearing public debt securities held by private investors.. surplus or deficit...... 411 B–79........ Federal receipts...... Treasury securities outstanding by kind of obligation.. 1949–2003 .........GOVERNMENT FINANCE B–78..... 1963–2011 .............. 1950–2009... Federal Government current receipts and expenditures................... 1963–2011 ................... 1952–2011.... 413 B–81............. 1946–2009 ............. 1970–2011 ............................... 2000–2011 ............. 1950–2011......................... 1963–2011 ............ 1962–2011 .... 414 B–82........................... Federal and State and local government current receipts and expenditures. fiscal years 1945–2013 .......... and debt....... 425 B–93.................... Treasury securities................................. Common stock prices and yields................ profits..... 431 B–99........... 1973–2011 .... national income and product accounts (NIPA).............................................................. 1963–2011 ......................................... fiscal years 1939–2013 ................. Historical stock prices and yields. selected inputs....... 1963–2011 ................................. all manufacturing corporations................. by major category........ 412 B–80...... Corporate profits of manufacturing industries. 1945–2013 ....................... national income and product accounts (NIPA)...........................S................................................ Federal receipts............... Federal receipts......... 420 B–88..... 421 B–89...... 418 B–86. 1963–2011 ....... State and local government current receipts and expenditures. and debt... Farm business balance sheet. 1963–2011............................................ all manufacturing corporations... Federal receipts and outlays..... State and local government revenues and expenditures. fiscal years........ Farm input use.. 430 B–98..................... 419 B–87...................... 417 B–85............................ surplus or deficit...................... Estimated ownership of U..... outlays......................................................

................................ major industrial countries............. 445 B–112...... 442 B–109.................... 1992–2011 ....... 439 B–106........... U.. Growth rates in real gross domestic product......................................... 1953–2011 ......................... 1965–2011.. 1985–2011 .. Foreign exchange rates...... international trade in goods on balance of payments (BOP) and Census basis................... 434 B–102. international trade in goods by principal end-use category.S........................... 2003–2011.................. Civilian unemployment rate. and trade in services on BOP basis........... Agricultural price indexes and farm real estate value..S... 436 B–104.............................. Industrial production and consumer prices...AGRICULTURE—Continued B–101............ 438 B–105. 1992–2011 ............................................S..........S...... 440 B–107....... U............................ 444 B–111.... 443 B–110................ selected years............ and hourly compensation... major industrial countries............... 441 B–108.................................. 1975–2011 .................... 1983–2011 . U... international trade in goods by area.......................S. 2004–2010 ........................................... International reserves. International investment position of the United States at year-end.......... international transactions......... 1993–2012 . exports and imports of agricultural commodities.. U........ 1985–2011 ......................................... 446 Contents | 313 ...... U................................. 435 INTERNATIONAL STATISTICS B–103........................................ 1950–2011.......

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Because of the formula used for calculating real gross domestic product (GDP). except for selected series. 2012. not applicable). The Department of Commerce (Bureau of Economic Analysis) no longer publishes chained-dollar estimates prior to 1995. In particular. Unless otherwise noted.. Symbols used: p Preliminary. General Notes | 315 . all dollar figures are in current dollars.General Notes Detail in these tables may not add to totals because of rounding. Data in these tables reflect revisions made by the source agencies through January 27. Not available (also. tables containing national income and product accounts (NIPA) estimates reflect revisions released by the Department of Commerce in July 2011. .. the chained (2005) dollar estimates for the detailed components do not add to the chained-dollar value of GDP or to any intermediate aggregate.

437..9 1..2 3. 1990 ..3 1.2 2... 1997 ..5 1.063...9 14.3 600.8 1...2 564...314.2 214...1 1..8 193. 1977 ...546..2 13.100.9 3..8 1.7 60..6 4.5 9.2 714.8 386... 1999 .2 –19....332. IV .099..135.....4 126.8 65.4 435.2 10.482.. 1964 .....765. 1975 ..722...112.2 6..6 532.087.7 590...0 875..340.2 519..642..638..9 6..456..808.0 2... 2007 ..2 3.707.689.1 18.317.337.5 249..8 63.3 17..8 10.9 479.....8 650.1 10.....223.1 5..824. Gross domestic product 617.1 666..3 1.....7 832.9 362.6 594..6 172.. 1984 ...077..386.2 2..5 1..4 995...1 233.7 1.....350..563..2 109..0 903...8 15.273......7 1...256..838... 1976 .6 37..2 2. 1963–2011 [Billions of dollars.0 13. 2009: I ..0 419. 1974 .596...1 2.324..5 –200..0 761..4 178..0 1.030...3 331..7 132. 1965 .8 18.076..5 4.1 10....700..665.4 1...8 480.4 55..1 4.6 602.0 2..053.5 3.987...623..505.7 1....5 1. II ....1 44.679......0 8.1 9..382...501..844.126.3 572.. 1969 ..9 757.176.9 1.717.1 2......673..5 3..1 1......641..895.....3 34. 1994 ...8 –14.7 202.9 957.0 284..2 1...8 39..460.1 15.5 274.....4 509.1 5.........5 2. 1970 .7 1..076..6 2............951..620..388..0 –6.903.............1 6......................1 118.7 40...........7 524.1 349.3 266...5 1...1 4.3 6.......818..103.853.2 3. 1981 .6 9.979.061.. 2010: I ..006.033...7 2..2 515....913.176. II .5 1.4 803.4 1.8 6.355....3 10...784...7 282....8 416.1 –41.0 492.0 1.580.006.6 177.7 338....6 2.2 1.9 861.5 414.0 117.070..8 607.....7 248. 2003 .4 14...7 13..2 956...7 Nonresidential Total 88..0 2.7 280.7 6.9 1..791.6 304...9 677....1 187..6 1...2 14.2 2..9 1.3 1..701..858.7 472.3 546.0 14...2 156...990....3 224. 1989 . 1979 .4 1...8 663..2 424.6 199..6 4..647.2 23.2 131..3 438..8 102.......8 953.9 4.841..3 1.7 1.7 28.4 407..8 71..125...004.6 489..642...0 1...6 6..3 1.7 853.0 63..4 424.7 192.028.980. Gross domestic product.622...7 118.4 1..8 1.....5 405.0 1.6 464.8 869.1 Total 56....580..2 489..7 3..5 359..7 6.....123.4 38..286...0 205..7 249. 2002 ..7 622..2 990.9 903...1 6.. 1980 .058....4 2. 316 | Appendix B Gross private domestic investment Goods 198.5 14.3 3....933....1 1.. 2005 .0 802...570..1 361.594....1 670..1 570..143.3 349.8 7...7 10.653.245.185......0 114.4 104..2 2..3 78....7 2.5 224.052.... 1982 .1 231..2 1.614.679...0 472...0 6..5 577.7 3...9 306.9 14.0 871..0 74..1 6..3 1.2 7...3 12.. 1995 .861.0 14..3 29...5 174.......4 64...6 389.7 3......906.665...772.939. 1967 . IV .4 353..National Income or Expenditure Table B–1..755.0 10.9 4.363.390.......2 852...6 1.713.2 207..7 318.9 353...1 14.2 331..4 93.8 1.2 182........497.....2 212.3 20.9 485.338.890....920....0 3..793.3 5...676.....4 236....743..6 1..070.8 9.1 1.2 46..9 589. II ..... 1993 ..4 154.4 16..483.9 1..4 1..1 2.5 6.815..728.7 71. 1973 ..0 342..3 973....3 –44..7 351..3 31. 2004 .466.277....7 14.377..6 719...1 See next page for continuation of table.086..342.142...2 122.7 62...5 110.6 1.534..840...288....0 302.5 1..8 2..563..6 8....8 6.6 27.5 785..2 1...033..694..5 27...015...5 15.3 177...3 248.0 10.9 1...... 2008 ..122.592.0 1.270.301.7 239..3 Fixed investment Total 382.....726..2 3.3 42.....736...0 1...2 61.6 10. 1985 ...7 2...4 354..5 10....5 10.4 2.1 2..039..4 968.290.183..5 491.184... 1978 .....7 6..2 292. 1988 ...799.3 1..3 275.0 527..9 381....9 1.0 605.6 731....651.....5 Services 184.154.9 74.3 354.5 1.....1 147.526.8 4....2 55.1 8...112....529...4 6..6 93..8 803...273.5 6...8 433....270..1 22..9 3...071..327.9 318.9 3..081..430...6 1...481.....8 1.......4 1.8 66..5 54.8 69..0 932.0 1.1 106.075.6 775.896........6 188...344.126..2 890.427....5 932...6 2..9 9.081...........6 526...2 5..5 –38..746..6 5..097.......1 283. 1983 ....6 ..6 6......6 3..4 544.....1 3...414.591.038.9 180.8 1.7 6..918...3 1.......5 –18. 1991 ...3 1.4 169.7 1.1 13.6 1...9 1..5 4..7 1.377.2 112.447..3 1..9 3.1 –66.6 Total 93.1 373.5 327.076......0 1.3 701..7 136..917..8 449.830.6 333.8 1..8 3..4 542.1 329...788.841...0 950.772.1 3.562.3 1...170.5 228.8 273.7 3..7 1.999..3 9.224....1 15..6 736...3 9..9 47.7 109.....0 1..668...6 2..3 32........3 25.387...781..110..217...4 7..126.1 236.7 14...1 34.205.3 66.6 2.6 1.353.9 183...3 1..5 1.645...0 123.. 2011: I ..371.......087.....018.....130...4 21.2 4.7 1...661...195...0 216.1 1.... 1996 .1 842.....1 302....5 2.171...165.5 3...9 1.. III .8 9...........6 3..2 1....7 10.905.750.227...240.1 97..8 54..7 1..8 1....8 984.995.4 420.. 1992 ..4 739...8 14...137..8 207.6 235...3 150.2 339..717.3 1.035.....381.8 85.4 152.....1 2.800....8 1.7 14.4 598. 1966 .6 3...... 1986 ......2 376.571.5 604..2 252.6 1......5 7.4 86...0 54.4 5..3 2.5 173. 1987 ...9 1.416.153..3 131.1 648.....6 737.143.......353...342.439..7 1..661..5 918.128.8 916.992...5 899.181.4 1..7 2.5 396.9 262..0 3....0 68...3 330.6 10...0 –6.460.7 42.939.... IV .795.968...2 3......9 1.7 34...9 494...8 4.1 128.253.3 1..6 874... III ...3 1....351..1 847...8 6...779.....1 3... except as noted...656..3 229......534..6 2....5 9.2 370..422.0 2.5 5.6 1..3 449..012.829..4 3.......892.1 1.1 385......9 50....835.5 –..7 3.4 1.6 Change in private inventories 5.......293....728...5 10.5 1..5 443..930.4 65.6 259.....467. 1971 ..1 787.. 2009 ..510.3 6..2 220..8 1...6 542...148.6 141...1 337.236......5 EquipStructures ment and software 21..245...3 1... 2011 p ..5 176.3 1.6 369..8 281...0 16....0 426.6 770..9 334....8 718.720..755.0 29.9 312.8 1....3 1.7 1..4 3..580...9 198...6 117...0 1..1 563..7 1.0 2.2 2...729....4 7..483.378.2 11.........4 5..1 3.3 735.659...853..5 1....3 3..423.151.9 507..121.1 –160....4 300..197..7 82...012.7 152.4 228..4 329.866...592......3 846.4 230....568......9 Residential 32..7 1.....7 3...6 451.130.1 1..159.267.. quarterly data at seasonally adjusted annual rates] Personal consumption expenditures Year or quarter 1963 ..8 2.8 1...6 2.8 6.5 81.5 –197.....415.7 1.087...3 31.6 1.854. 2010 .6 1..8 570..803..581.4 899.6 680.482.866.135....6 141..8 339.3 128.927..7 2...2 1. 1998 .911..0 1..5 13.0 414........5 10.2 186......8 153...6 41..702..6 1.6 244......2 474..7 337.3 848.4 810.7 3..3 12.4 909....658..7 343. 1972 .........5 9.499.1 1.506......4 7.9 67. 2008: I .4 194... 2000 ..8 31.9 799...295.. 2001 ..8 558..6 414.7 7.858.9 –5.0 60..3 1.5 33.6 335.5 1.6 439...3 1.850.2 30......637.7 13..9 374.3 6.9 864..9 628.6 5..491..3 2...... IV p .8 342..5 –179..3 1...2 612..6 1. III ..4 8.118...9 1.2 1.9 14..2 1..209.0 53.5 417... 1968 ....3 1...2 32.2 226.867.. II .3 108.1 3..291.493....5 10..0 1...318.2 7...447.913.2 167...4 764..6 105.1 1............172..804....781..6 2...4 481...4 517.......100..3 1.4 663.7 1.6 9.....071.8 4.. III .5 5.1 –82.8 72..9 1...277.731.1 9...7 98...294.266.144...7 411.634.3 1.....610.268.9 425.5 8..6 250.276..0 821........637......1 3.2 7.3 169....2 746.0 6.5 898.....5 1.893.305..5 9.9 59.658..085.5 3.5 14..1 853.605.0 3...1 1..8 421...9 586..7 9......5 14..8 1....0 62.0 9...667.0 412...7 47.417....689.0 361.0 61...7 75.459.1 1.3 177......3 239.347.237.....0 63..6 154...3 786..3 7...7 2..408.4 461.....6 379.8 1..3 11.8 524..6 .8 15...2 1.097.7 38.704.0 1..809.678.. 2006 ....395..0 345..

7 1.......6 14.0 2..4 281.0 1....896.8 83...773.....066..8 346....505..0 6...5 134.8 14.7 1.1 2.0 14.2 1.6 1.955.772.4 3.4 2.8 1....798...2 14. 1986 ..... 1991 .6 Total 136.9 550...0 830.9 374..0 4.2 452..6 2..6 14.175.192.398..9 503.859..6 14.7 4....2 91....4 State and local 59.112.9 1.9 5.4 8..570. 1997 ....9 –2..525.8 14.1 552. IV ...5 2..... 14.... 1978 .3 1.7 –96.3 1...7 6.0 655.561..5 14.8 119.9 577..255...3 14...8 –64.055..595.2 –132.4 14.5 14....999..8 14.0 302.375....4 –161.7 34..2 15..3 –746..245..1 –618.8 14.2 225.355.7 –391....8 1.5 5.0 6.7 1..3 1..0 831.....6 –23..5 14.....865..7 11.2 –540.7 1.3 –597.7 262.8 9.443.1 1.....4 11. 1999 ....498.154..180..1 6.3 1..8 5.1 1..8 21..6 12.822.2 7.7 –437.6 5.7 223.115..6 14.......6 406...9 230. IV ..4 –5.... 1966 .7 1..6 2....3 1....159.4 .738. 2008: I ...460.4 3.4 171.4 3....036......087.8 706.2 283.929.....0 5....292.1 3....2 2. 2011 p .7 290.805..251..6 122..7 811..268......5 7.5 –338..371.. 2008 .0 518..8 975.. 2 GDP plus net income receipts from rest of the world..0 –1..9 406..493..8 828..136.691.5 3...356.4 2.674...146.0 218.2 709.0 1.6 1.6 481..4 89..621....4 1.0 531.786...1 –709.6 405.3 113..807..9 –593.974.2 60.6 756...793.0 2.3 823..3 12.5 783..7 771.6 724..5 15.801..8 317.9 59..729... 1973 ....8 774..2 –571.1 349.......7 976...9 287..2 2.210.3 74...2 824..592.1 –87.0 6...1 39...2 391...8 589......9 250..7 623.....1 1..8 –262.9 43.......3 2.675.234.1 6. 1996 .7 680.452...273. 1965 ..1 –382.5 7.5 5.2 3.....8 2.......1 6.7 7.7 1.4 1..631.5 1.027..454.5 6.6 143....0 1..439..421...716.8 403.1 373..2 89.6 1...1 15.5 1..9 84.4 1..508..1 596....819..876..3 9.097.1 5.5 149..0 15.6 1.8 1.0 5.6 4..389..797..3 15...........2 127.....0 45. 2003 .8 1.224..1 376..3 –582.433.4 902.7 1.369.7 9.4 6.935...7 341..9 78.0 813....3 9.786.5 5..4 14....3 3.....6 111.4 156.4 7.3 133.668.054..9 1.....6 Total 76.3 894.. 1972 ..835.0 159...8 16.029..3 619.......2 –504.967.6 1....7 149.2 310...6 4.024.7 1.4 15..590...8 363............447.9 2.. 1998 .145.7 Final sales of domestic product Gross domestic purchases 1 Addendum: Gross national product 2 612.9 15...3 931..944...4 2....9 2..9 1..345.7 –90.917...5 461..7 554..3 1.1 –25..0 National Nondefense defense 61...711.. Gross domestic product..731...5 12..2 668.....709...3 6.073...1 4..7 242. 1977 ...9 92..5 87.0 14..099.2 5.2 1.594..... Source: Department of Commerce (Bureau of Economic Analysis).4 233...0 591.942....1 453..248.439...........5 740........ except as noted.2 1.7 317.2 1.6 1...7 –102..........9 539.5 995...2 8.0 1...3 1.6 243..2 410..6 466.5 209...0 2.8 349...181.8 2...9 .408.219.233.0 1....326.8 3.703..5 2.0 6.0 1...8 709...2 322..5 1.8 14...6 789.6 84.7 9.2 181.6 1 Gross domestic product (GDP) less exports of goods and services plus imports of goods and services... IV p ..2 14.9 8..3 132....860.381.7 2.038..7 713.2 1.366.8 6...6 –27..5 680.781....846....1 1..7 1.2 3.....774........3 2..0 172..2 2.4 143. 4.798.9 11.8 811..1 –562...4 1..069....9 4.....6 4.0 437.9 18.0 354.......9 989.4 15......016..7 1...4 65.4 3...5 8.7 83.7 3.. 2011: I .433. 1968 .4 1..294.3 2..3 11...8 20.domestic tic purproduct chases 1 5.333.... 1976 .4 13..715.681.9 774.1 13.4 792..4 4..9 5.0 4.1 658..........5 1..221.430.586.664...7 14......5 –20...571..100.9 5.2 5.650.0 320..665.8 5.646.....4 15.....5 2....3 369.1 95.8 9.........9 5.4 1.6 3...315..4 3..4 3..5 4.812...5 10....699..878.109.1 2..6 635.731.022.1 35.8 3...1 4.6 900..2 855..4 75...4 733.. 1979 .682.6 7.....646......1 747.2 2..9 908.... 1983 ..8 527.4 –92....1 1.5 55.7 3.841..8 –4..8 2.9 258.8 1..7 138..4 459. 1989 ..9 662. 2000 ...2 7.7 –769.826.2 11.4 953.3 2.8 915..9 51..0 815.7 1.228.934..0 –10....5 6..8 14....383.....0 4..0 1..829... 1995 ..121...4 9..4 7...018.5 311....7 14.0 554.195....0 196.7 5.....0 8... 1982 ..2 674.210.720..9 130.8 3..3 113.9 2..6 119.6 1.. Percent change from preceding period Gross Gross domes.7 362...1 611.....2 1.0 1.1 182..997.4 14.3 252..983..9 1.. 1969 .2 277.7 1.7 365. 1990 . 1993 .905...244...7 497.. 2010: I .5 1.327....293..801..8 348....9 2.6 2..770.020..6 –3.7 8....0 1...8 8...3 622....7 151....7 6..3 –12.7 612...3 6...5 64..9 7....2 1.4 208.3 14..870...5 3.0 –427..780..356..754.8 350...545.034.... 1988 .4 11.8 170...0 37. 1963–2011—Continued [Billions of dollars...2 5..324...777...4 1.798.772.5 159..8 –531.665.....0 70. 1987 .4 2..4 263.3 3...1 –756..7 101...177..0 724.526.....9 210.0 1...9 525.1 417.9 1.9 5.302...5 1...6 50..9 383.5 1.047.170.040..305.076..241.2 15..1 –371..2 14...5 7....7 –383........5 14..453..0 15....8 62..9 4.0 6.8 303.9 576......7 1.. 1967 .0 11.2 1.378.2 15....3 12...0 13...0 1.2 120..9 10..3 –101.237.0 ..1 1..5 145..0 4.....661.839.0 108...7 –115..3 1...2 1..003...2 3.332.540...081.2 183.7 9.5 824...4 6.807..091..6 844....100..810.137..9 409.9 –578. III .5 37..259..1 31..520.8 354.794..6 1.4 104....5 60.8 1.435....3 412...2 14...6 4.5 404... 2004 ..3 14.5 5..0 –32.093.....232.8 2..4 1.7 954.118....2 –1.0 943..2 1.5 7...3 4.7 3...7 8.. National Income or Expenditure | 317 ..5 1.021.4 212..044..1 2...583.......7 280......789.2 11. 1974 .400..084.......8 720. 2009 .2 14.6 26.7 8.105..586.779.289.9 88...609...6 12.999..594...8 1.......7 293.4 4.9 809...4 796. III ..Table B–1.7 14.2 –742..3 221....9 2. 2002 .556..9 357..3 –406.1 371..690.6 –8.8 29.8 14.111...1 28.916.7 1...... 1980 . IV ...0 4.522..994..6 2.4 302.5 5.. 1975 . 2009: I ....330.329.....3 1...4 1.319.813.9 3..5 3..5 9.....485....027...3 1...151.9 878.6 281.8 1.2 1.1 2....4 190.3 999.0 624..515...471.8 143.2 2.1 12.989.7 8.2 2..3 238.1 4...9 508.5 6.4 12..5 4.004...0 1....8 1.6 379...8 656.....3 7..317....053.8 205..161..7 14.0 342...6 –495....3 1...2 1...4 –2. III .014.6 964.9 336....3 2.... 1992 .8 71......9 5.9 5.2 19..0 531..9 5.277.332.. 2001 ..2 1..9 819.0 1.8 159.273.4 186.596..7 2...157....1 1.8 25...7 1..8 12.5 4.0 3....8 1.3 5.....4 5.4 803. 2006 ...5 47.8 2..630.8 314.9 13.9 15...6 106.5 8.3 7.0 –110.7 758..002..6 518.4 6.9 4..939.4 1...3 14.0 –..394.518..0 14.....6 192....345.697.....4 –22. 2005 ..6 14.....8 2..338.026.6 9.222.0 164....1 162.5 7..5 –13.374.........5 422....4 14.1 1..9 15...9 1.878.5 15....1 120.....9 –77..3 3.9 1.6 407...268. 1981 ...8 8....6 15..4 762....125.9 990.9 14.644.....7 1.6 71....4 507.....5 5.7 4.042.1 1....6 2.4 3......1 40.3 4.2 4......0 2.3 363...7 15.234.1 627.4 2.......001.475.3 –713.6 10..1 1.0 1..935.6 107.139.0 357..544.2 168.117..261...780..6 876....... 1984 .812.1 32..151..1 10.788...9 1..6 103..2 7.. II ...7 390...8 14..2 330...698...2 11.3 306...236...901.0 629...6 720. 2010 ..0 –51..875.1 48.. 1985 ..5 2. II ..7 368.7 2..9 949.119...5 14..2 5.6 86.3 1.3 39....8 1..126.741.6 54.5 –516...573.8 342...153..8 1.2 151..018.5 667.5 406..881....0 5..0 79............6 6.1 –12.1 –.3 5...657.8 438.232.7 1.3 13..4 80.3 410.225.749..7 246.500.4 3.5 10..769..3 5....0 23...6 1... 1971 .7 566.9 14.6 8......6 532.0 1.459.3 342..... 1994 ..5 –145.1 510.134.9 10..615.038...3 126.......9 193....2 4.3 9..1 822. II .... III .0 791.. 1970 .2 3.1 3.. II .3 1.7 383.1 1...3 92.7 3.3 367...1 6.9 –....8 15.5 1..9 3..0 60..8 2..3 1....9 867.922.....2 8.2 3.. 2007 .4 113.6 500....584....7 63...6 109..2 87...6 3..3 1.1 31..2 10..0 1.9 6..080.4 6..9 4...477.5 818..7 7...0 6.0 353...1 1....6 3..0 1.9 11...041.3 5.164.240...0 393......8 837.0 11.967.0 2.6 769.304..5 526.1 7.992.449...444..4 14..0 2.0 8..933....7 175..094.5 4.... 1964 .0 414....3 737.6 2.3 –500.5 273..8 95...033.4 7...2 7.085..8 11.3 13.374.471..9 46.7 1.803..0 1.5 9.7 6.237...1 1.1 361...123.274.8 443...2 328.869.1 280..8 2....007..9 111..5 122..959.246.9 98..5 983.1 8.794...6 15..199.5 11.. quarterly data at seasonally adjusted annual rates] Net exports of goods and services Government consumption expenditures and gross investment Year or quarter Federal Net exports Exports Imports 1963 .195.........2 22.4 13..043.050..8 305...3 8.846...4 8..019...474..2 7...7 –722.....142...4 92..3 2..6 4.9 .5 2.....5 3...4 347.7 6..1 184....1 1......

.. 2008: I ......392......663..056. ................ .3 7.....5 4...... ..2 584.4 Total 353..........1 1.216..........5 3...2 888....3 613... ...........194... 4.... .0 1..7 ...991...791...186..0 –178..3 38................1 3....4 6...... 1977 ................ ..8 1... ...562...714...................4 11...5 3..247...........988...... ......253............ 1......1 1.6 5.172.2 444...7 803.....2 4.6 1..................5 1.....973....206.0 382......6 5....216....075.. IV ........577..1 1.......8 6........750.3 8.....4 1............ ... .7 –36. ...........106...032..589. . ......648...784.2 –41..........1 1.......1 6......7 506.......790.....5 1.....................8 3............... II ................8 3.......8 17.161....075.......2 779..5 306...8 1..726.. ..........................5 –14...0 6...... ...........017....665.....520. ...................879. ................6 1........9 705. Real gross domestic product.2 Services ......662....... .......018...........9 3............7 5. ...........9 1.................2 1...........313...............4 3....... 2010 ...407...... 2009: I ..4 983.2 1.... ..... 1992 ....4 615.834.6 1....039..............008.........................693.. ...854.............5 5..........5 60........099... .....124.......... .............0 1........ .607..8 354...... ........2 984..........4 1..... ...3 309.518.........064.....432......... .... ....5 6...2 603.7 408... ..039.422.....064..5 9...5 775..5 1...2 8... 1989 .9 1............................ ......231....535...... ...3 1. ........3 6.......306.076.9 8.3 See next page for continuation of table.......2 5..836........7 4....1 6.....040...........227........5 1.2 6.....3 4.....3 .... ...........319....... ................... ...8 2.7 1.006..........5 1.376...883........ ........0 1...7 1.. ....... ......027.8 9..7 939.......367...............6 –12.........766.....080... .. ................0 3....5 5. .202................... . ..8 474.. . 32......173.............738......9 323................1 2....6 1.....342.............9 1................0 5.3 1....958..2 1.....9 64...4 1...5 1................. . ..7 1.280...6 1.......389.....0 361............... 1991 . .978......643..347.......... Gross domestic product 3...240.....5 12.... . ........187...6 1.....4 9.........3 1.2 1.589................4 13.........2 6.6 68....984..............1 5..........247.. ....6 4...4 541.....4 5.5 6..........579... ....9 4.................189.......................... .......318.................4 13..................5 13............ .................. ....141. 2006 ...490....3 2.........7 3..... II ...6 473..5 2.....2 805.. ..........947..............321.. .373....7 1.641....9 10....... 1973 .........5 7..107.4 12...........4 71.... ....... 1981 . ....5 4.......4 889......8 540....2 12.... ... 1965 .1 8..............2 9...............0 1................2 321... 1982 ....736......537........6 13................9 332.................... .8 1....... II ...... .067..................9 3.....6 343. .4 5....129.. ...........9 1....055............. quarterly data at seasonally adjusted annual rates] Personal consumption expenditures Year or quarter 1963 .........928....0 438......0 305......... 2008 ......9 1. ..........9 6.... ..........6 92......0 9.. ..............698..............178.......9 12........998...1 435.3 995....... .008. ......... .... ............. ..... ... ................139......4 Fixed investment Total 1.........0 59....932..... .......351.......438....... .......777............ . . .331......0 3...... ............ IV ............825.... .274..................... .... .9 958..6 1........219.........803........9 6.4 1.9 610...............4 387.160............024.....1 5.371...4 27.....8 933............. ..... ...764............................ .......7 3....... ............. IV p ................ .........455.........0 1....5 9......4 1.. ... . 2003 .. 489................. .......5 8..7 13.....3 6...0 12.................050.....481........ ...... ... ......4 325........ . .. ... .... 1976 .173.......................0 Nonresidential Total ........4 1....9 1......9 1.....3 1.......231...6 1....9 5.........4 6........8 5..285..059..............813.......3 2........3 348....7 1. ........................992......130..2 8.... .. ..853.. 1975 .... 2002 ..571............9 . . .606...... ........3 –144....3 50........ ..........3 3......122.....7 3....0 346...........9 778.... ......6 7.... IV ...9 310.. . ............ 2005 .......262.................1 9.......... ....7 874...... ........ ...8 1.......870..2 6.8 5...4 1.9 1.....039.5 12....8 13........246.. 1986 ...0 917.....018..249.Table B–2...058..... . III ..................413.7 9..4 2.865........ ........... 318 | Appendix B Gross private domestic investment Goods ..... 1995 .392........990............... ... ...........8 1..2 580....... ..271.5 12. .......4 527.....4 4.....837................3 732.. ....172.........230.....703..0 5............694.5 962...254.............980.....7 9..365.6 1......... III . ....8 1...... ........ .....425...........2 2............ .............159....4 469... .3 –161.................863.5 501.................. ............ 1983 ..............1 321.......... .....935................ ..331............8 4..0 883.5 3.3 4. ......7 –56........389... 2011 p .........058......3 3......................... ......8 35........019.....465..805...775......... .4 4.... . ...328........ .5 1..076.................0 2........9 9.6 3..7 11.117.....4 1.690.........9 2......064....9 12...............145...010.136... . .... ......167.. .037. ..................5 2.. .......8 948.....5 1..... ...6 13.341........086.....9 2..... ...9 6.308.......867.........313............................................. ..862..4 367.5 9......2 1.......843.. ........1 3.875...... 2000 .....9 2..... .9 334.....607...2 1.... .....266.0 2..............5 13..875.211..094..1 318...........2 –38.......... ..2 77.5 13.. ..5 715..........624........... .060................ ...0 8. .2 1........ 2004 ... .. 1990 .....5 9............. .. III ........... .... .........8 4.. ..........3 1...397.... . .515........258.2 1...592..............6 1....7 3.. 1999 ............. .240....266.... 1968 ... ......9 3......1 11..3 1...3 2.....5 5........2 1..... ...... ...... ....630..................2 3...5 965..... ....252.....9 909........2 2.......5 11.7 6.. .............207..3 462............1 4..............8 2. ..3 8.0 1....096..... 1985 .896... ...8 437............212... ..4 989........4 354..3 66..... ..6 5..1 9.2 4................8 658.......186......963. ......8 1......2 5.7 10...........9 4....................... . ..442.. ..843...3 502......939. ............ .8 2....982...088......... ... ........0 1........ .......7 3.835............. ........ ..086.............. ....3 49....1 5..........3 3......0 912.............850...........4 345...0 Total ............0 7......810...2 2.......216.........5 5.8 5....0 3.............2 1............098...5 415.... 1984 ..2 481....... 1964 . .7 301...............192...........3 375..1 6..8 2..5 5.........235...........289....702... . ..... 2007 ...939..6 824. ................ 2011: I ... ..1 –2. .................. . ...4 1....8 8.........0 1..6 2...1 1..... ........9 9.........307..312....874.7 1....378...........454... 2009 .......699..070....... except as noted..3 1.... 1969 ...........9 13..076..............5 39..........1 9...870........ 1993 .2 850...... ............ ..........6 7....0 1.......... 1963–2011 [Billions of chained (2005) dollars... ....................103... ....9 2.. .121............................6 3..7 9.728........672.......2 9. 2001 .6 1..8 5.........7 351...4 7......3 589.................465...... .1 492. ......................845.....8 969..... 1971 .8 330..821.7 2..6 3..9 58........082...........550.....1 9.................9 9.....6 1.........989......9 407....257. ..795........................0 3.. 1987 ...........024....7 5...... ........ .522..344... . 1974 .............0 1..0 718.. 1...............3 2....8 9. .082...066.. ........582............... .7 4..204....... 1979 ......... ..... .. .0 433...............2 440...6 1... 1967 ....................... 1972 ..2 1...1 452.... 1978 ..263....1 5........0 889......081..676...... .391.....3 729. 1988 ...800.........9 3......1 13......663........ .....722.............9 1...313.. .........096..3 3..5 1.........0 5....... ........... ............................263....0 3.................7 2...310.237...1 –80.8 348................. ....... .......7 694.... .......215.. 1996 .....0 13........1 321.......................409........6 5.................044..1 39......5 1.1 324......... 2010: I ...............9 3.. ...................1 5....................8 13.. 787..288........130.....1 31.1 3.. .....912.............4 1.......................2 466.3 8..0 9........ ..........3 1.2 344.. .120......... .....5 1.331....4 3..... ........... ............ 1970 .934......... .... ... ......................3 4. ...465.................6 330..............9 1..........906.....3 12..744.. . .6 3.....916....5 1.........0 9...0 1..... 1980 ...757........ ... ..7 1...7 3...580... ...........654. ..343...........0 1...........6 –183.......... ............3 1.. .9 12...3 356.9 321...208.3 9....0 56....471.... ................3 5...... 342..1 1.................220.4 574.. .....054.... ...9 5.9 861..1 1.....5 2...926.. ........... 1997 ....... 1998 .........953..................538...........597.....418.4 478...3 1.....6 670......421.............9 457.......... ...........0 583................4 333......4 3..734.........3 3...... ........... ........1 323..778....... ......503.. 456... III .....688.196.......4 7...............4 1..937..... II ..... 1966 ..827..071...244.516.7 474... .. .770... .............. ......9 326... ...885.. ..337.9 EquipStructures ment and software .............. ..842...................2 860...543......539.623.......274.......8 384.....953..433..... . ................5 9..273..............868...8 12.......093..... 1994 ..2 2..534......2 2...7 5.311...........4 1...8 395.......0 3.........604....8 664.....8 326.027.................124..1 1....2 1......8 463.........4 Residential Change in private inventories ........1 13.......

093....120...........1 13.9 3.739............369......7 –729...404.6 5.... III ...417..........585.... .277........ .497....8 1 Gross domestic product (GDP) less exports of goods and services plus imports of goods and services.....9 3......3 353......160...200..0 4..... .......1 . ... Real gross domestic product....6 13....187....184.5 ..097... .. 4...003.027........5 8.....2 9.8 334.224...688..1 1..4 780..5 3.6 –2.1 .7 714.......2 .2 3.....9 2............9 1.281....6 130..1 13..8 1.843..316.. ..047.... 2010: I ......3 1.. .6 226....2 599.....7 227...... .... .....0 1...028.187..............8 –252.918...8 –548. ... 5.5 244. .9 943.7 13............063..1 13.......0 13.1 13.4 13..567....895..330...3 283.228..644.......0 1..5 13.............864.9 2.....806....6 11. .6 12... 1987 .........867. ..5 4.1 10...8 2....180..... 4.......4 1..........8 718.7 .. 2009: I .358....815..........490...3 342...507...... 5..508..0 9........ .7 1..802.. 2011 p .295.0 236..8 6.4 1.3 2......645.. ...510..484.... 5.199.0 13.7 1.. 6.....820. 1997 ..5 151............4 .0 2...1 657..444..3 7... .....0 565.935.899.. .1 1..........295....4 718......7 1.852.....8 4.......1 3...8 13..1 13...2 13.... National Income or Expenditure | 319 ...3 589.4 598...390.5 –1..... 2000 .. ... .....875..6 1......908...920....2 .......1 .0 2........1 1... .1 894.9 –6.......1 2.4 2....... ..8 2....277...3 1.........8 4.......261......1 –.1 549.......8 7.8 10.......8 1.......028. ..6 3......2 –424... 1990 ....6 455..4 1.9 12.530.540.......0 ..8 5..6 12...043.5 13.9 767.......046....7 2.340...............9 325.6 2.. .7 1...0 13.....4 174.... 2005 . ...4 13..5 1...9 1....... .355..domestic tic purproduct chases 1 4. .8 2..... –98......5 3...5 1.5 320......5 955.8 5........2 7..043..3 1.........917....5 1.........1 346.1 694.0 136......2 1........0 ......... ..987.....0 12... . .693...678..429.....6 707...058........ 1989 .4 3....719...751..4 –648..4 3.4 2.9 4.9 708........ 7....0 4..8 –110.....2 2.0 1.869..7 –8....... 4.211...3 .7 691..2 13....0 1....193. 1991 ....6 1...9 . ....158....0 2....0 1..4 1.4 –346..2 .7 ..9 –.1 1..6 360... IV ... ..925.587. .9 5.597.....967.860.. .......177....4 3...0 1....517..5 11....2 –8.9 1.353.9 709...514.......3 –471..2 .4 5.....267.. .2 –464.328.....151...8 8.7 12..643.......765...7 1.6 2....6 9...0 996..503..473. .....7 ..9 –....2 1.781........984....6 4....027.............057....431......3 2..............2 5....... ...533...649.167..058...........4 5..203...716....4 13....873.305.....0 .5 1..065...075.5 128..141......6 317......8 244....5 550..1 2.2 –1..2 1.9 1......7 2......092......504.. 1967 ...8 13.....3 2.....8 689.554.362...5 12. .....964. ..6 1.3 1..4 2.056.2 2.....8 1.. .3 2..7 384.. .....884.....1 9...502..870...2 906.4 1.5 5...........2 3..402.....6 717...289.3 191.. .4 4...7 313.6 5.. .... .. 1977 ..440.....3 1. 2002 .........0 1....7 11.0 –404.8 –494..........6 1.... .534.. 1988 .082........8 1.................0 158.........5 7..131. Federal State and local AddenFinal Gross dum: sales of domestic Gross domespurnational tic 1 prodproduct chases uct 2 Net exports Exports Imports ......836. 3....4 –1.... Total Total National Nondefense defense Percent change from preceding period Gross Gross domes..449..646.. ......367.. .9 3.304.497..0 4.......2 2..6 1.......2 12.9 621..... 2006 ...8 698...580.........1 520.2 344..........018.1 136......4 1....546.1 2...5 2....149........ .. ..4 6.8 5.0 3..4 225.............507.......254..907.7 8....8 6.0 11....7 4............3 1....9 1..335....143..9 ...8 1.6 333.9 1..4 493.7 –687. ......910. 1982 ..3 349..653........... 3..5 3.0 1. 1986 .7 361..678.8 –405.7 4..500.....8 3....3 1.2 2.....3 12.. except as noted........985.2 –331.......5 2..... ...9 –376..........917.208.....4 –451.493..2 3.8 111.0 151................3 10.776... ......5 470......0 287....7 2.7 255.....340.......2 281..1 .. 2011: I ......2 .. .....257...225......801....833...8 186.......1 6.....8 4. 1994 .453...1 7..7 –139.4 1. 5....0 873.0 580...494. IV ..1 4....7 328.....6 12.....1 288....9 696. ....8 634......494.4 –416.3 178....5 1.9 ......... .......0 8........ ...785.0 470...500...8 728.116.4 1.6 1......181... ..... 4...849....164. 5.....7 8....1 488.0 1.9 1.178. .520.....4 2.5 1......092. 2010 ......6 349...7 –1.9 2.5 683.9 3. 1972 ........9 1........7 –....2 3.0 4........452..4 9...5 233..7 1.1 3.....143. ...513...601..8 13...8 238...246..303.....7 –4.893..737..2 231....395........4 2..6 5...341.2 4.........7 13.9 1..079...367....014.1 4..5 3........ . II .........0 11....456.5 13...1 1....4 5.....2 2. ..818.........960..459..432..6 ..9 1...4 4.3 5. .188.943......2 356. ....0 3.636...3 2..0 1.2 2......264.... .271.2 3..4 3.....530.....2 5..............029.....5 1...7 12..520...4 1. III ...........450.466.....3 726......4 6.2 1.....478...8 4........ ..236..634... ..173.. 1968 ......922. III .....5 13... 5.7 1..4 1...... . Source: Department of Commerce (Bureau of Economic Analysis)... 1996 ..348.............5 1.....8 5.....2 1..4 4........ 2......860.. 1985 .9 1............9 1......898..0 –1..............684. 1965 .497.7 1.9 13....... ...1 –.. 4.. 2008 ..4 3......9 1....131..2 1.......449.....9 1...9 4.........9 13.4 1....3 1..403. .. 2003 .......056.9 289..556.. IV p ...752..4 13... 8....345....4 ....939..8 3......6 –478. II . 2 GDP plus net income receipts from rest of the world.....203.. 4....488.3 9.053.423..8 294....1 1.....5 4.... 1980 ..9 12.... 1984 . ...9 3.9 4........4 355..1 1....... ..803...181....... 4.....9 13..3 255.......4 5.725...9 2..... ...0 4..........0 1....049.638........4 296... . 8...5 5..8 249..........8 –412..6 1. 1993 .....9 140...7 1..7 1.....7 5.....3 5.7 3...6 3......463...........302.. ...5 2...7 1...7 982..027............9 13....1 ......512. 1975 ...051....259....6 1.383...... .. ...........................2 3...048........8 ..... .....599...3 705..1 425......784.....884..079..1 4... 3.971....1 453......... ...182.....5 505.8 11...186....2 8....4 –.4 284.634...085..1 2........0 1.0 ..548.4 –458.9 1.. .9 5..0 1.......9 7..3 1........ 1995 ....489.8 –437. ...514.2 13...2 1.............520.636.......422.....3 5..7 7..774......873...1 6....8 ....284.2 13.......8 –358........ II .434..3 11... 1981 ......9 876...........297..749...9 2....3 1.......4 9...5 6.4 1..183..... ....1 4...0 4..9 ..2 12..1 1.....4 124......115. 1963–2011—Continued [Billions of chained (2005) dollars..2 12...361.. . 4..9 598.3 –1.9 352.9 13.288......717......400.2 7..............3 4....025.121.....7 6.....048...3 357..9 2.230.805.075....144...5 334.8 245..5 2...5 4................4 971..531...1 –.....869.9 3...3 –3.. ...925..3 13...2 1...490.... ...7 309....9 13.3 13....... . III .279....0 943.181.2 7..486...7 6... ..2 ....855.2 695.8 8... 1966 ... 8.. .....3 694...3 ...4 5.238..556...819....026.233..6 779..1 2....0 1. .2 669.0 671.720...7 312..656.0 .. .6 359..087.. 1979 ..9 ............. 1983 .8 1....2 1........... 6. 1964 ...503. 1969 ...7 701.0 261...Table B–2....222..621......0 13.6 995....7 1......3 1.......... 8.2 2.5 1.......7 –1..968...6 1....487............1 362..7 214.. ...442...6 –2..0 359.......3 4.....0 12.8 13...4 1. ....... 8... .. 1970 ..5 705...888.251..9 –722. ...539.528......................1 476..785....9 13.......... ... . ...7 12...8 5...7 333.9 13.888.508.893.....1 611.....097.1 1.......4 369. II .....1 7......3 1......7 2.....696..8 ........ ..983..8 10.......592.....6 2. ....6 1........... ...7 1... quarterly data at seasonally adjusted annual rates] Net exports of goods and services Government consumption expenditures and gross investment Year or quarter 1963 .554....8 8.....5 683...922..................198...8 12..9 8..6 13. 1974 ..........1 1....... ...3 1.984...319....3 175..222.509.4 9..9 1.1 12...1 1...........2 5.0 681....5 11.2 1.0 669.. ..3 13.... 3.....770.8 8..................7 8.671.5 2...528.0 2..2 351.... 1992 ....1 1..054. .478.....530.3 –8.....855.... ...573... ..039.....047....878.8 13.6 1.....6 1. 2001 . . .....194..663....... .7 –414..4 845..9 704...5 12...... ........2 320....... .....3 –3.8 10.3 –550.4 –402.6 1.. ....0 1....1 12.............. 2009 .446.1 643....570... .8 4...... ....... IV ....332....8 1.3 1..7 11......578.395.499......4 2.6 –..308....5 831.0 6....098.......9 718...9 2.....1 352.....9 2...3 672.2 4..7 1..451.......2 301. ...6 3....300.........1 ..589.....1 1.... ....992. 1971 ... 2004 .........0 865..........6 11....679..991.0 2.206....3 .........5 –356..371. ...3 12....939...5 1..322.......0 12....5 13.... ...024..... 5.. ....2 2......2 5....9 13.878... .7 1...1 3.8 –......................7 4. 6..... 1978 ....4 13.728.211.5 –4........5 –603..3 5.....8 2............5 3.. 7....6 2....5 1.......0 1..8 2... .8 251.... ..8 –352........7 4...934. 1999 ......8 1..5 13...2 ..954.0 13.1 915.... ....1 13...830...758.......1 11......758.......2 12..... 3. ....029..972....1 312.....0 2.552...... .4 3..8 1.836.8 3.........382.........3 1.1 13.4 353. 1976 ....7 2...3 9...9 2. 7... 2007 ......7 1.. ........646. 7.8 2..035....................6 13...1 1.2 1....6 1.......110. 2008: I ..........0 1..909....3 1..245.. ..0 1..197........907.....181...7 639..........564....844...3 5.0 .......5 2...643.8 1. ...3 273. ...........4 447.....476......9 1...5 5..852...2 348.6 12.8 3.2 277.....6 6.8 227...794...2 –486..8 1. .5 695.115...8 2.......7 2.3 1...........606.1 457..0 1.0 393....325.8 –421....706.......097....9 649.5 2.3 ... 1973 . 1998 .4 2...0 1....

2 2.499 108. 1964 ..142 22.0 2.......307 107.................3 3. 1967 ..965 61......9 10....022 88.0 8.783 94.913 29....7 4.....0 3....733 33.602 83....826 76.650 108... 1992 .270 100....526 55........817 61........628 62.8 –...5 2..................6 1.. 1969 .......4 1.198 33. 320 | Appendix B 19...8 3..8 3...778 94.2 1. III . 1989 .. 2010: I ..6 4..8 3.4 2.1 1. 2011: I ....749 41.3 2..9 4.362 23.......254 19.....4 7.7 1......4 ....6 2.382 26.3 1..5 2.130 24..816 91.078 83....8 2.9 1....3 1.....724 61... 1968 ...1 1.047 69.046 69.3 5..4 4.6 1...663 50.Table B–3...502 21..........3 1.412 24..1 3.. IV ...4 10.262 74..7 6...437 31...672 78.101 105.980 74..597 91....554 26....9 1...584 86......534 110. 1996 ....2 4....0 2.1 1.824 76..1 9........7 7....9 3....8 3. 1975 ...319 100.....3 5.8 3..514 57....705 38..598 78..........2 2..673 112.536 19..206 32.652 59.2 2.......384 107.7 1..3 1....5 1... 1980 .5 1..640 55...290 79......0 2.020 108.......836 113..887 60.2 2.9 1.566 44.. II .6 2..761 85..940 46.....154 84..727 92.585 112..459 57.....2 2..........4 5...0 4...334 19...5 2.........8 1...345 46... 1963–2011 [Quarterly data are seasonally adjusted] Percent change from preceding period 1 Index numbers.....8 2.628 85..9 5..1 9.065 59........4 2.2 3...447 104..811 113..4 2.5 3..3 1.....818 67.194 108... 2006 .....7 1..5 5....... 1987 ....9 1.9 ...159 84..147 110.....1 –.2 2.4 2.4 3..686 63..2 3..606 35.......1 6.208 106...4 6.....265 110...302 82......0 9..302 109.....174 34...4 6.9 3.....208 111....2 4.445 93..3 –3....969 110..338 25. III ..5 1..946 Personal consumption expenditures (PCE) PCE Real GDP GDP PCE food (chain-type chain-type chain-type lessenergy quantity price index price index and price index index) 19.723 105...7 8.....8 2.. 1995 .5 5...679 80.645 22....614 106.....842 88....7 4....1 1...2 1..774 110....0 1..107 109.9 3..5 1. 1974 ... Source: Department of Commerce (Bureau of Economic Analysis).....324 114. 2001 .9 3....1 1..3 3...227 108.342 52......282 109.......6 1.....9 –.818 91.8 7...662 109..920 38. 2005=100 Gross domestic product (GDP) Year or quarter 1963 ..5 9...570 52.....6 1..7 –....5 1..3 2.137 46.....510 25.... 1999 ....231 108..5 6....7 4.5 3.811 47.... 1982 .815 107...5 4..... 2002 .025 72..052 110..1 2. 2010 .....5 2.....217 47.4 3... 1972 .1 ...3 1.2 2.0 8........936 20..1 9...000 102..162 109.2 8.4 2. 1994 .........031 23. IV p ..6 5..8 1....872 75......3 4....2 2... 1998 ......747 113.040 23.989 78.1 3..5 2. 1966 ..2 2....000 103.120 69..9 –6.....991 64..092 57...6 .4 2.1 4.140 105....1 4.370 110.7 3.....631 107.9 8.4 2.7 3........1 1.....852 109.3 3....644 112... 1981 ..8 ..6 3..000 81....8 6.857 89. 2004 .8 3.888 109...2 1......349 25..817 52.7 1..724 90..4 5....4 PCE chain-type price index 1.644 107.057 64..1 2...5 9...5 2..3 5......475 108...134 96....716 32..513 110....450 104...5 1.237 106......4 7...... 1986 .488 109..6 3..7 1..9 3.091 20..1 1.3 4..390 46.9 3.729 110...963 111..8 3.....0 1. IV .442 22... II ...9 5..535 37.....320 38.1 3.. 1965 ... 1984 . 1976 .281 19..589 19.8 3.231 106.2 4.8 2.. 1977 ..0 1.192 94..579 72.1 ... 1983 .0 4.6 –..602 78.9 4..618 66...4 2..595 67...623 40..4 1.266 62.433 86....819 20.......594 109..8 4.130 36..3 2.6 2.....732 111....8 4...786 100......3 3......9 –..703 109..790 106..731 92...792 105...7 –....4 3......5 7.....326 55...5 1....1 .....4 6..326 88..5 4..657 28.691 110.6 1....145 100....4 6... IV ...0 8.717 109...... 1979 ....4 GDP implicit price deflator 1.....3 .935 GDP implicit price deflator 19.135 96....7 6....2 5.1 2........398 113.. 1993 . 2005 .1 2.670 28.5 3......796 110..7 1....4 2..524 1 Quarterly percent changes are at annual rates.5 5. 1971 .2 3.591 108.567 26...2 2........ 2009: I .3 ......1 1...5 3...4 6.2 3...... Quantity and price indexes for gross domestic product.815 100.536 26...1 2..4 ...940 81..692 25......9 2..580 19.....133 22.196 94....2 4.935 81...000 102.........119 24...5 3...3 3..247 57.5 2.345 20...705 42.6 3...8 1...9 3....6 2.635 103...943 110..8 3..3 5........377 49.705 59.791 52.623 108.....021 100.......9 3.6 2..511 21.1 1..2 2. III ..8 3.........454 Personal consumption expenditures (PCE) Gross domestic product (GDP) 4.468 102.709 78...000 102.5 2...6 –1...1 2.2 .386 87.... and percent changes.4 1...0 2......530 92..4 8.9 2. 1973 .442 65. 1997 ....7 –8...627 85...8 3...0 1.. 2011 p .723 90.966 36....974 64.8 1.....5 2.783 40...8 3.913 108.864 85.162 111.505 29.784 100.685 24..2 1....709 109..788 38.798 47....064 100......214 71...0 2.256 80.541 59..509 102......793 111..844 107..606 83.300 109.0 1..5 4. II ..0 4....000 113.875 83.....358 110...106 81..3 9.....770 111..136 111.5 1.427 63..0 1.....580 86..5 3.........470 105..805 21....3 3. 2008: I ...5 –.......9 4.171 38..636 89.......819 67.091 113.. 1988 ..420 63....2 1...156 112...684 105.3 9.3 –5..118 113..4 3.1 4.....840 88..1 4...3 –3.. 1978 .8 3.569 45.575 30...................567 101..1 2...3 ....093 104....8 3....288 79......1 2.............834 21....666 114..154 92..932 36.1 4.... II .....353 110.7 6.9 3..7 PCE less food and energy price index 1.5 3.1 2.......5 1.. 2009 .............789 76.5 4.3 2.823 97. 1991 .....7 2.......690 33........5 7....5 1.9 1.5 2.3 2...4 4.....9 1.....717 33.7 4.7 3... 1985 .9 2.2 2..3 .218 108.322 20..664 26....3 1.769 97.943 109.591 63.9 5.........4 2..6 .1 1........1 1.2 1...2 2. 2003 ...2 2...270 55... III .5 2...626 23.1 1.180 74....435 43..658 109.....5 4..5 2.274 74.....470 48..591 35..8 2..494 103. Real GDP GDP (chain-type chain-type quantity price index index) 25.582 109.695 33.265 104.695 42.. 2008 ....2 1..136 30.948 58....8 2.6 2.992 113.........493 27...7 –1.798 34. 2000 ...1 1... 2007 .327 107....4 5.833 53..8 2...5 2.3 2..3 1.1 1..565 109.589 109..622 104.....519 37.687 32.......7 3..7 2......3 2........112 113.148 30...............284 89...4 5.8 1.796 40..060 54..447 43....8 1..864 111..945 20.1 2..2 4.. 1970 .......331 67.151 69... 1990 ......3 9.5 –1....246 87.247 109.3 5..658 97...121 100...0 2...851 28..699 104....889 72..3 4..466 70.000 103..390 113....699 112...290 19......397 85...9 4...788 20..156 111..3 1......214 56.....874 61......577 72.390 95.658 104.9 2....169 111.

6 1....0 12.7 9....3 22.. 2009 ......1 5..9 –34..4 5.4 –2.7 1..7 –21.1 4....2 –3.6 13. III ...1 .6 3....9 12.4 12........8 5..2 –32.....4 4.8 –.9 1..0 1.1 2......0 .....2 16....0 23...1 1. 1988 ..8 –24..8 1.6 –.6 –2..0 8.3 17..... III .9 –13..6 6.....4 5....9 1.3 6. 2010 .2 –7. 1981 ...4 1....5 2.5 8..7 5.9 2..7 –1.....6 –2.0 1.0 1....7 2..9 4.3 4. 1986 ..0 5...8 2.... 1971 ...6 1...3 5.3 –1.9 –.......6 1. II ..3 3.6 10...7 3.9 11..3 2..6 –5.7 4.......2 9...2 3.......3 15.. 2005 ......2 5....6 1.3 4.2 3....9 4.3 –9..... 2008 ..8 –3.1 –2...6 ..2 –4.3 –2...1 2.8 3.4 5.6 –1...1 4..9 10..8 –2...0 1..1 6.....5 6..7 2....5 11.5 –1......2 10..8 3.......5 5..2 Total 5.3 5..3 –..7 –3.4 5...1 1.2 3.......0 4.8 3.6 2.2 4.3 11...1 2....0 –33...0 1. 2008: I ..1 6...1 2..0 6..7 2. II .....0 –8..7 3...5 2.......3 2..1 –11.....7 1...4 –7..3 –3....3 1. 1997 ....4 3.2 5..5 –17..1 14..6 .1 2.4 2.7 –12......0 –2.6 4.6 7.6 6...5 .. 1974 .3 12.8 –2.6 –2....5 3..8 –15..7 2...3 3.8 4..7 –10...0 –2......5 6...0 6..2 4...3 22.8 6.. 2011 p ..8 2.4 10.6 –10...5 9.0 9. 1993 .3 2....5 4...0 –9.9 4.................9 8...4 –2.6 5.4 –3.7 1.8 –2.1 .8 3.6 1.. 1964 .4 12.2 –2.7 21.3 –20.....6 11.9 3...6 2..0 –.4 3...9 2....4 3.....1 ..1 –..1 4. 1983 ...6 3. quarterly data at seasonally adjusted annual rates] Personal consumption expenditures Year or quarter 1963 ..9 3.8 –1.8 –3...1 4.7 3....5 7.2 41..8 4.9 1..5 –.7 –1.1 12.3 14.1 ...2 14...... 2003 .2 5....3 5..7 3...0 –.....3 –11..1 5..3 3.8 ....0 3.......1 15..8 –3..1 2....9 1.0 8..6 3. 1967 ..4 11...0 10...0 10.....4 5.6 2.0 2.8 6..7 1.4 1.7 3..8 7.5 21.......8 2.... 1991 .4 2...7 3.5 18..1 10.2 3.5 5..5 –5.8 5..9 4....1 1.3 –..5 –6.0 4.3 –3.2 3...3 2.8 6.7 4.7 2.5 1.... 1982 .7 8.7 –.0 2.7 2.. IV .0 1.0 –1.0 9..5 3.....4 7..8 2.2 3.....5 4.3 .... 1968 .4 1..1 –1..7 5....5 5.7 –3..2 3...7 2.9 .1 –2.6 4..5 ....8 Gross private domestic investment Exports and imports of goods and services Government consumption expenditures and gross investment Exports Imports Total 7...2 ..5 5.2 1..0 2......9 –22.6 –2..2 4...3 5.1 3.......1 8....2 7....8 2.8 8.4 4....5 13..2 7...7 –3..6 –2....2 –..2 –2.3 ....5 2..5 4.9 2..3 –.2 3..0 6..3 –1..2 –10.9 11...2 4.6 –20. Percent changes in real gross domestic product..1 5..2 5..4 .4 .....5 21.....0 –1.....0 10.6 5....6 6.7 2..6 3.. 2004 .2 –1......2 14...4 5.1 8.....3 –1..5 12...8 4.5 –2..8 6.3 2.2 –8.2 1.2 14..6 14.5 1......8 –17.5 2..8 1.3 5.....9 1..3 7.8 2...3 11. 1977 .....3 1.5 11.0 3. 1987 .0 4..2 11....0 –3.4 –7..2 3.0 6.....6 1....7 2.1 –... 2001 ..1 3.9 –.4 –7. 2007 ...6 3..2 6.....8 5.....1 2...4 3.1 2...3 –3.7 4..8 3.....7 –2.1 –3... 1996 .9 2..3 –1..2 3.0 11......2 8.4 9.1 3.8 –.6 –.3 8..2 –4..7 –4........ 1992 ......1 1....5 13....1 –2......7 9.8 6.6 1...2 3..6 13..2 2..3 3...5 5..8 –2...7 ..7 3.9 1.6 3..1 10.7 7..9 23.9 7.9 2..3 17.3 2...7 13....5 –1.5 1.8 1...4 2.5 3.7 6....8 3.5 14....3 .1 7....1 –30...1 4..3 15...9 .1 1..7 5..7 11..3 3.2 3..0 18.8 6.9 3.3 1.7 Structures 1.6 ..1 –...8 –4.8 1.1 2.3 5..3 1.4 1....3 .4 8..3 –3.9 7..4 4..5 3....9 –. 1972 ..9 3...3 –16.8 6.....7 4.2 1.7 2...6 9.......2 10..6 3...5 –3....6 4..9 1.3 7...0 4....7 4..7 3.3 6.3 4.2 –35.......2 11..5 2....6 2.0 Goods 4.2 8..6 11. 1999 ..3 4.5 –.5 5. 1990 ..9 2.....4 4....8 8..3 12.7 7.2 –.......0 2....7 –1.9 –31. 2010: I .2 8...9 3.5 –11.6 –1..2 4.9 18....0 4.5 –20..3 ......5 –2...9 4.. II .1 2.6 11.5 ...8 .0 –2...8 –5..........4 9....4 –21.5 7. 1976 ...3 –4......4 12.....8 –9.4 4...5 1.7 23.... 1963–2011 [Percent change from preceding period....4 8.5 1....6 . II ..0 –..2 ..9 –3.3 1.8 3.......4 –2..3 –15.6 –9..5 2.8 –27..6 –......3 10.6 –2....1 7.3 8...2 6....8 4....6 1..5 1.9 –6.7 –8..7 –3..9 8.2 5..5 –.3 5.7 2....9 2... 2011: I ..7 6.7 2..9 5....7 6...3 –.7 1.9 17..6 2..1 –4.8 –5.0 7..1 –33......3 3......4 3.1 3..2 10.....7 6..0 7......4 2..............9 –..2 6..9 8.5 2.5 –2..0 10..7 –3.........0 8.5 7..3 15.8 3.....4 1......9 ..1 ..3 6..3 6.0 ..6 Federal 0..7 3. 2002 ...8 –1.5 –21..1 –.3 4.1 –9......3 4. National Income or Expenditure | 321 ..8 16.0 ......5 –1...8 –3......4 15..7 –.4 2..4 11.4 –..8 2.1 3.4 1.1 ........8 –1.....4 14.1 6.8 –5.9 –8.0 3...8 4.2 –1.9 1...7 ...0 4.. III .... 1973 ....7 –.4 .9 .7 4.5 –2...1 –7..0 11...7 4.. Gross domestic product 4.6 1...0 –6... 1994 ..4 –28.... 2009: I .7 10....6 –14...6 –13.....0 –18..9 –1.. 1995 .4 17..5 –3...1 .8 3.6 4...3 –18.8 3.4 1.8 3........3 4.0 1..0 –1......0 6.1 7..6 8..8 8..1 6...6 –...6 3.9 3.0 –15.....9 5.....0 2...7 –3.3 14.7 –6.8 –2.5 –.1 5.....4 6.3 ...5 3..6 –1. 2000 ..9 7..3 16.8 10.1 5...8 1... 1985 .4 1.7 5.3 –5..0 –..0 –2....1 8......2 2..5 7...3 8......3 17.9 6...8 –1.5 9...7 –7.7 ....9 8.5 6....4 .0 16...9 1.7 –23..8 4.7 1...2 10..6 ..6 4..6 –9..6 10.5 –1....1 10.. 1984 .......5 3... 1975 ...6 –2.0 –2.5 4...5 4..2 –1.4 4....0 14.5 –14..1 6.8 –7.4 12...4 2..4 1....Table B–4.....5 2.......6 12..4 19.8 4.0 5.6 4.3 10....1 19. 1998 .6 –....9 . IV .9 –22.0 27.... 1969 .6 14..9 6..3 –30....6 12.5 3..9 –3.4 –1. 1979 .6 3..4 Nonresidential fixed Total 4..9 .5 4...9 .8 6..3 8..2 1.. IV p . 1970 ... 1965 .2 4.... 1980 .0 1...4 –...3 5...1 .0 ..3 12..5 6..2 6..9 3.2 3.7 Services 4...0 6.7 10.......4 1..8 9.....9 4..5 –14.....9 –.6 24...0 4.1 1...1 7.6 2..2 3...7 1.5 9....9 7...1 –1..8 –2.3 .0 7.5 –7. III .4 6..1 –29..1 13.. IV .4 1..8 –..7 7..4 –21.9 2.5 3...1 1.2 Residential fixed Equipment and software 8...4 4...1 –4..0 2..7 6.6 Note: Percent changes based on unrounded data...1 –6.9 1............2 –15...7 1..9 3.... 1978 ....1 –3.2 5....3 5.0 –..2 6..2 ...0 .9 5.9 2...3 1...2 9...2 5..9 –3.9 3.3 2.2 6.4 7......2 –2..2 –7.....2 –3...0 5.7 –13..4 2..3 3.3 State and local 6.4 11.1 1.......7 3.4 5...8 13.. 1989 ...8 1.0 1.4 –2.7 6.8 7.1 1...8 4..9 –.4 3.. 2006 ..7 3..7 9.0 9.7 5.... 1966 ..0 2..6 12.....1 8.8 18..7 7.9 2... Source: Department of Commerce (Bureau of Economic Analysis)..8 14........9 –1..0 –.7 –1....4 7.0 6...8 8.9 2..4 –29.5 7.0 –..6 –1..9 –1...8 3..2 8..

...05 –. 1995 .........22 .21 1.35 –.57 ....46 .06 –....66 ....32 –....02 –1.....99 .....10 Total 1.05 –....65 3..67 –..28 –1.....28 1...... 2007 ..3 5.56 3.53 .05 –...07 –.....03 ... II ..41 –1..50 1.71 –..18 –..20 –..52 1..55 .. 1994 ..85 1..05 .29 –..5 4..74 –..18 ...42 ..36 –.03 ..05 . II ......60 .03 ..29 ..50 –.. 1987 .5 2.......12 .21 .....09 ........09 1.99 .21 3.7 –.24 ..52 1.....93 1.15 –2...39 ..96 –1.73 –1..51 2....44 2..91 1. 1986 .62 ......91 1..02 –1..2 3....57 –1.69 1....85 2..27 1. 1971 .60 .37 3.40 –.7 –8.5 7..04 –1... IV .04 ..02 –..50 –.....11 ..06 –.70 –....35 1...20 . except as noted.81 2.72 –...7 1...8 3...34 Services 1...2 4.. IV .1 2.....33 1....02 .46 ...42 .56 –1.18 ..24 ....4 2..15 .86 1...17 –..41 ..08 –2......86 ...........71 1.46 –1... 1998 ..10 –..41 1...58 .00 –.....1 ..56 1.8 2.27 –1.01 1...71 1..08 1. 1964 .05 –......65 ...30 ..87 1....93 ...82 .. 2009: I .26 2.....47 1...4 5.42 –.47 –1.44 1.65 1.. II .57 . 1972 ....49 1..........06 .....07 ........51 2....07 –. 1965 .37 1.86 ..4 4... 1969 .47 .08 1....28 1.38 ..4 6.94 1.20 –..10 1...81 1.97 1.9 –6....53 –1....34 –. 2009 .84 –3.18 .5 4.04 –2.45 .....14 .......30 2.41 –..89 ....6 3......03 ..20 2..67 1.24 –.24 –...43 3..93 .48 –.16 –1.17 2...17 –...15 ...50 1...09 1..08 1...49 .69 ......8 3...12 . 2001 ....32 –..5 3...22 1.. 2000 .....66 –..15 .56 ....23 –. III .47 .69 3.86 3..09 1. 2008: I ...92 2..32 ..24 –..04 1..94 ....16 1.19 1.5 –1..21 –1.....87 –1.53 –..... 1993 ......40 –.......95 .. III ...33 –1....00 1. 322 | Appendix B Gross private domestic investment Goods 1..78 1.......2 5.....90 1. 2004 . IV p ...51 3.....35 –......98 ........ 1984 . 2010 . 2002 ..09 –...05 .9 –..16 . 1966 .08 ....16 .64 –....90 –.10 ..34 1.71 1.85 –...80 .....35 1.69 ...84 ....28 ...07 1...32 ..50 1...........01 2......21 1.10 –..5 3......66 –.66 1....59 –7.. 2011: I .....43 .21 –..36 ..20 .44 –. 1997 ... 1974 ..58 –.48 ..39 –1... 2010: I .9 –..73 ..47 –.35 3....97 1.40 ..76 .....89 –.58 ..26 1........01 –..25 .58 –2.03 –1.47 –....66 ...4 5..17 ........82 –.83 ..42 . 2005 .09 .......5 3...54 ......26 –.14 .04 1. 1968 ..67 –3........17 –..61 ...20 ...05 –.63 ......27 1.06 ...........7 1..66 ...91 –4...13 –....09 –.1 2....98 1...31 –2.95 1.11 ..81 3..22 .21 –1.....64 –..30 .....50 3...07 1..04 –1......48 1.36 –......47 –1...1 1...11 –..... 1981 .23 Change in private inventories –0..58 .48 3.......55 –2..32 .13 ....78 –...64 1..05 ..10 –.34 ..32 1..86 –1..42 –....10 ..24 ...79 1.43 –2....34 1.10 .91 2..35 1....24 1........64 .76 ........19 1....13 –.43 2.51 ..66 2....96 –...90 ......80 –1.....18 EquipStructures ment and software 0.81 1..30 –.59 .53 ...28 ...70 .....14 .73 1...75 ...27 2.49 –....10 ...43 –. 1977 .....66 –3..02 .10 –....24 1.46 . IV ....14 –...94 .........04 .5 2.60 ..10 ....77 1..27 1.05 –.......50 .33 1..85 1..13 –..31 1.58 ...47 1..63 ..18 ...06 ..4 4..76 ...36 .......14 –.27 .37 2.79 .50 .89 –3.....66 –.19 .26 1. III ..59 1........09 .02 ...19 1.32 –....98 1.55 –.74 ..85 1.....65 1... 1970 ...90 1. 1963–2011 [Percentage points.34 –1.42 .32 1.46 .87 1. 1985 ...07 1.....2 4...90 –1..93 3.18 –2..84 2....17 2..34 ....1 3. 1978 .18 2.23 –.25 2.53 1...0 1.....57 .35 1..9 4..43 1.. 1982 ..3 –3..40 3.9 3..8 –..8 4....73 –..26 –..33 .00 ..09 –2.30 –..32 2..... 2003 .......02 –.94 –2...92 1.38 1..12 1.10 2.26 .52 .21 –.....41 ...51 .70 .8 Fixed investment Total 2.84 1.58 –.41 Total 0......02 .12 ....53 ......... 2008 .. 1996 .50 –.04 ...42 2.91 ....00 ........02 –...... 1992 .56 1....3 –3......58 –.. 1976 .05 –1.. III ..37 ..09 –1.25 2.20 1..62 2....07 –.61 1..08 –..79 .. 1980 ...76 –2..20 1.....74 1...63 –..15 ... 1967 ....54 –2.18 –..96 ..02 1.67 1.....07 1.52 ..66 ...22 .........91 1...79 –1..92 .5 3..04 .14 ....27 1.78 1.22 1.90 –1..12 1...6 –...7 4.70 ..34 ....31 ..84 1.. 1979 ..............88 . quarterly data at seasonally adjusted annual rates] Personal consumption expenditures Year or quarter 1963 .60 1.....89 .74 1....32 –..35 2.20 ...05 .24 1.5 3..49 .....01 ..39 Residential 0... Gross domestic product (percent change) 4..7 3.19 –1.40 ..39 –1....29 ...77 .25 ..20 1.........41 –.. 1975 .70 1.24 –..45 .60 .29 1...06 .19 –....50 .3 2...45 See next page for continuation of table...82 3.16 –....05 –.08 –.12 1....29 1.29 1...15 –.05 –5...35 Nonresidential Total 1..6 1.14 –.31 –...43 1....42 –.82 –..21 1.............01 .........71 –. 2006 .41 1........63 –.60 –........3 ..90 ....95 ...90 .54 ......66 1...39 –......18 ...57 1..07 .50 –...12 –1.51 .57 .31 .....2 3........29 .87 1.52 .05 ....54 .85 .........1 –..07 ..87 ..91 3..48 1.05 –. 1988 .92 ......10 1..33 ..63 –5..08 1.12 . 1973 ....33 1....04 1.33 1.3 1.......21 ..38 1..33 1..1 1.....12 –..10 .77 .63 –1.......44 1....87 –.14 –.00 –...4 1.97 2...94 ...68 .....53 –1..09 .04 ...25 –1....39 –...16 1.61 1......8 6...15 1..99 1.....36 .17 2....55 1..07 .49 1.....99 .43 –..13 .....14 1....21 0......27 .78 –...44 1..29 –...60 1...41 ..06 ..62 1...52 1....02 .....76 –.52 1.........45 .85 1...36 –.59 –.46 .7 –1. Contributions to percent change in real gross domestic product..12 1..37 ..13 ......54 1....37 –.....05 1.. 1999 ...78 2. 1990 ..........26 .13 1......61 1...68 3..41 1....49 –1....48 1. 2011 p ..45 4..... 1991 ..86 ......15 2.71 –..... 1983 ...8 1.28 .....16 .73 –1.10 .20 –.8 2.....21 ...35 –..94 ..15 1.1 3...47 –.94 .51 –.8 2.71 –1..98 2.61 .91 .55 .79 ........95 –1.13 –..... 1989 .15 1..26 –..50 ...12 ..Table B–5....37 –..61 –2.......6 5.33 ...09 –2......07 .57 .......... II .54 –.90 1...27 –...47 ...05 .62 1..37 –...03 .9 4.51 .48 .

25 1.07 ..39 –1..27 .12 .....37 –.52 .18 1... 1967 ... 1971 .66 .75 Goods –0..00 –..45 ....73 –..67 ........19 1.55 –...43 –.25 .....83 –.82 .08 –.36 –.04 –.05 –.....75 –3...............34 –........15 Total 0....33 ..60 ... 1986 ...15 ..63 .16 –..35 –.26 .06 –...01 1..02 ..21 1.82 .13 ....19 –1..44 1..03 ......74 .35 .62 National defense Nondefense –0..38 .13 .08 –..65 –.73 0.28 ..13 .32 ....39 .....01 ...29 –....33 .....13 –.11 .21 .......09 –.24 ..23 .17 ....26 .....38 2...03 .24 ... 1968 ....82 –.50 .53 –1..26 –..43 .57 .17 .....13 –..52 .10 –...58 –1.99 ..91 –..63 .51 ..10 ...04 .56 –......54 .... 2008 ....01 ...39 –.68 .00 –..13 –..............04 ....21 –...05 ...13 –...09 ..14 ....44 2. 1974 .....15 –............41 ...85 ..16 .......66 –..12 2.05 ...51 ..89 –1...18 –...06 ........03 ..05 –.02 .....79 .13 .58 .....10 ...74 .15 .65 1.02 ..25 ...45 .06 –.94 ..21 ..30 . 2004 .21 –.98 5.....12 ..30 ...07 .....47 –2..07 ....41 –. 1972 ..24 .71 –3.. 1985 .26 .......12 .18 –..03 .06 –.13 .41 –..35 –..47 .57 2..15 .26 ..55 –..22 –.65 ..20 ...17 –.52 .08 –..11 –.02 ..05 ..36 –.41 –.03 .90 1....11 ..01 ..11 .34 .49 2...31 –.87 –... IV p . 2005 .22 –.52 ....09 .11 .. II ...73 –1..26 .07 –....94 –1..82 .37 .56 ....12 –.97 –1..05 –1....00 –....89 ....36 . 1992 ..82 ..07 –. 1975 . 2001 .63 ....06 ...06 –..30 –.43 .......68 1..16 –..05 ......58 –. 1996 ..17 ...20 –1.18 –.18 . 1973 . 1978 ..18 ... II .31 .22 ...13 –1. 2010 ..05 .17 –...29 –.....06 –.21 –...19 .38 ....50 –.. 1995 ...........10 –..05 ..68 –..15 ..19 .. 1983 ..29 .....12 –..01 –....23 –.25 . 1987 ...18 –....49 –.....05 .84 6....14 ....07 –..32 –.10 .83 –..45 –.08 .18 ..93 1..88 ......68 1.. 1994 ..03 –.97 –.24 .15 .01 –1.58 ....12 ...97 .18 .29 .71 ..25 ...04 –...17 ...08 –..85 1...16 –.26 –..31 –.02 –..23 –...84 –.04 –.40 .31 ..02 –....71 ..56 .14 –.05 –.10 ... 2008: I ..63 ..82 –.51 .24 –.09 –.19 ...42 –.06 ..... III ...18 ...36 ....16 –....37 –...64 .....06 ....65 –....20 –.59 ...00 –.21 ..35 .24 ..23 ..36 –1...02 .......43 –...24 –2..01 ....16 –.07 –.....18 .68 ...10 .77 .34 –...36 –1.....15 –..27 –.19 .15 –....35 –... 1963–2011—Continued [Percentage points...42 ..35 ..16 ...12 .94 –....29 –1.........34 –....71 –.16 ..25 ..17 –...25 –.04 –........08 ......33 –......27 ......46 ...60 –....68 ....41 ..24 ..49 –.20 .27 .44 –. 1993 ...04 –.....03 –.03 .42 .....32 Source: Department of Commerce (Bureau of Economic Analysis)....35 .46 ...16 .21 –1.68 ......12 ..11 .....43 –1....37 –. Contributions to percent change in real gross domestic product....67 ..42 –...18 –..17 ..35 –1.48 –.......47 2.20 ..16 .02 .20 ....44 ....22 .05 .....33 –..84 .08 .37 ............46 –...20 1.. III ...28 .42 –.04 . 2009: I ..03 –.49 ...22 .52 ......48 .35 –.75 .08 ....63 2...48 .09 .. IV ..16 .29 –..31 –... 1982 .03 . 1989 . 2009 .....90 .25 ..19 –.......12 –.75 .38 ..02 –.... 1980 .01 –..77 ....16 .04 –..08 –..48 Imports Services 0....72 .00 ...30 ....19 –..45 –1.28 –.74 –......97 –3.07 –...81 –...06 –.23 –...09 –...12 ..56 1..28 ...82 –.....42 ......37 ..07 –.71 –..58 –...86 1......81 ...48 2.03 .....26 ..19 .10 .11 .14 .27 .....02 .44 .07 –.51 ..40 .......12 ....23 .64 –..... 1969 ..27 –.06 –.67 –.09 .........26 –.18 .48 . 1976 .34 ..17 . 1965 .19 1.24 ...67 . 1999 .11 –..56 .24 ...84 ..16 .11 State and local 0.32 –1.......73 –..06 ..20 –..01 .82 –.00 –.......10 ...56 –1.....28 –.43 .85 ....20 –..33 1...... 2002 ..13 .61 –.... 2011: I ...01 –....19 –..21 –..28 –..38 ...02 ....20 –........15 –1.10 ...35 –.......20 .30 –..45 –.15 .66 1... III .33 ...41 ..86 –....18 –.......79 –....67 –..57 –.21 –...75 1..45 ..94 –1.30 –...05 ...70 1.15 .64 Goods 0.85 –1... 1990 .99 –...28 ...09 –..04 –.84 –...21 1..41 .05 ..17 –....10 ...61 –.. 2011 p .09 –...39 –....17 .20 .05 –.67 –....01 .58 ..07 .44 –1....04 –1. 1964 .04 .12 –.05 ..29 .02 . 1966 .46 ...34 –..30 ...52 .12 –1.....05 ..02 .22 .75 .07 –.13 –2...11 –...13 –.65 1...34 –..19 ....18 –....07 .19 .06 ..57 –.79 ...04 –. 1981 .....41 1.21 –.. 1998 .10 –..10 .68 –.... 2006 ..37 .04 1.....01 ....46 –.....04 –.48 ...31 1.25 2..83 –3......82 –..26 .16 Total –0.04 –..07 .....18 ..19 ....20 –...19 –.43 ......28 ..03 .......98 –2.... 2003 .17 ....16 –....40 –.48 .....47 ...23 .....60 –1....85 ...84 ..72 –.27 –.....90 –1....16 ..01 –..63 ..44 –..00 ..10 –.....02 –...17 –.......49 ...23 .....36 ..22 –...23 .07 .02 ...43 1.....05 .20 –.....03 ........08 ...10 –.45 .Table B–5.63 –.09 .15 –....42 1........ 2000 .01 –.. 1997 ...86 –...69 –....03 –..10 –. 1988 ..27 .....14 ...02 –..02 ...12 ....11 .05 .08 –..12 ...02 –.45 –..03 ...00 .02 –. except as noted.. 2010: I ..42 –.02 1. II .09 –..26 ...51 .17 ...22 –...10 ........28 ...37 ...23 –. 1970 .09 –.01 –.19 .57 ...31 ..62 –1. National Income or Expenditure | 323 ......60 ..86 –......31 .....19 –.92 –...03 .... Net exports 0... quarterly data at seasonally adjusted annual rates] Government consumption expenditures and gross investment Net exports of goods and services Year or quarter 1963 ...38 –..38 –.68 .......31 –1.11 Exports Total 0.....00 .38 . 1991 ..38 ...93 Total 0.. 1984 .87 –1.....65 –....87 1..21 .09 ...66 ....29 –..02 ...39 –...60 Federal Services 0. 1977 .02 –.75 ..06 –.14 ...26 ....36 .95 –.76 .21 –..16 .25 .63 .45 –...34 ....09 ..55 ..........05 –.....19 –.25 –..98 1..........64 ...96 .06 ...03 ..26 2..52 –...77 1.13 ....23 .16 ..13 .98 –..22 –2.36 .11 –.39 –..15 .40 ..08 –...97 ....11 –.59 .. IV ...30 ...24 ....34 .47 2.33 –... 2007 ..30 .14 –.49 –....24 –.. IV ..18 –...78 –..24 1..08 ..46 .48 –.13 –..12 –...92 –1.....34 ..30 ......50 ....39 –.....21 ...35 –.50 ..08 –. 1979 .07 .29 –..33 ...09 .55 ..26 .25 ..78 –.01 ...63 .19 ..76 .82 .....67 .62 1....35 ..... III .60 –1...26 –...08 –.34 ...22 –..85 –........... II ....14 ....85 –.07 ..26 .......03 .08 –2.....08 –1.

IV .473 74...359 60... Gross domestic product 25. 2011 p .470 48.512 12... II ....326 88.177 22...513 11.....283 35....477 27........297 57.508 54.848 80.....492 38....218 104..331 28.450 62.057 118.......327 94........... 2004 .....090 .008 45.103 49...789 85.935 103.880 100..973 81..319 100.000 102....... 1999 ....390 46...........800 26...546 Residential 32.879 86.393 112...000 102.....855 41......650 96...493 103..275 27..825 20.848 91..176 89.633 43..112 88.330 88.161 110.569 41..511 94..847 84.....006 108.060 54.940 46.....023 97.270 100...186 44.......998 57..525 59..204 85..328 46...837 112..124 33..870 43.158 54...751 69........850 105.916 42.....429 74.452 108..383 67.684 37.106 21..791 24.009 30.696 102....... 2003 .812 89.070 19..717 33.504 34..190 99...721 56... 1994 .449 20....058 98.156 45.139 104.480 78.754 24........164 39. 1966 .021 71.373 38...700 108.....027 115.465 35.944 117....354 89......839 115......456 52..191 101.011 33...390 93.646 110.939 25. 1997 .... III ..138 100.994 24...........238 107..215 38..869 133..187 96..447 93....525 40... 1967 ..151 65.. 2011: I ..791 31...631 92...217 47.909 112..220 109.555 103.466 70.524 48..658 80.... 2009: I .142 34.599 104.458 103...595 104.142 84.926 35..633 93.....543 43....635 103....910 75. 1995 .628 106......683 36.....296 66.731 100.....679 32...404 112....743 62......944 78.135 85...949 36..541 41...511 106..231 54.830 39..768 91.851 70.345 46..334 Fixed investment Total 22..667 75..699 104.... 1971 ......290 93.745 81.595 67...578 132. 1978 ..797 24..228 75.950 26...593 23.465 105......574 34..684 105........379 57.836 61.755 71..117 33.377 97...497 131.753 39.382 26...873 106.........000 109.442 65.....300 73.. 1989 ..086 34......322 106..870 94.....214 71.904 54..015 46...376 38......658 89.524 49. 1990 .173 55...913 106......397 85...437 31...644 104...306 17........039 23...712 94..641 10.......752 37..309 101.997 15.015 105..838 20.912 42..571 56...367 102..125 120....693 107.487 32......895 32.303 27.146 41....266 42...859 104...578 11..073 76.411 89...101 123.693 105.....623 33.. 1963–2011 [Index numbers..335 45..703 29......915 58..412 89..150 90.537 83. 2010 .732 74.964 Nonresidential Total 16.....940 71.562 81.090 94....829 84....447 43..695 42... 1988 .017 30.672 78...344 104.203 47.517 33..... IV ..931 49..838 59..134 92..092 57....729 44.860 134..097 23..640 77.861 70. II .021 100..448 52...975 40...590 111.........101 105..681 42.420 29..092 74.. 1968 ..589 71.080 93..096 102.112 32..541 29.447 30...254 49.463 104....705 38.... Chain-type quantity indexes for gross domestic product........091 62....504 28...725 101...667 82..468 102......587 42...449 106..747 84..744 110...389 46...486 52.496 104...237 44....... IV .....322 53..098 103.......164 17.272 15...156 107.453 27.......061 80.380 79.935 78..802 41........901 40....476 7. 1969 ...450 33.....912 105......342 104.599 105........ 1977 ...685 34........000 102.680 44.174 110.642 55.551 53.......478 104..... 1964 ....486 42.....096 74.317 64.101 41.600 81....064 100. 2006 ... 2009 .704 87......320 86..299 55....761 43.... 1991 .206 32..297 34..550 64.247 13...816 91.....531 48.303 8..010 77.654 20.026 40..968 25.280 115.420 63...688 77.361 32..989 35.......079 87.024 9.046 Total 12.261 88..819 45....989 86.169 90....... III .488 75.565 48.....701 16...125 35.506 Total 16...023 82... 1983 ....614 106.042 27....355 73..........920 38.642 94...077 116....755 97.589 20.333 34...556 91.. 324 | Appendix B Gross private domestic investment Goods 21.567 101..615 100...851 28..798 34..932 44.....822 97...203 69........926 28.515 105...377 92... 1973 ..258 79..776 100...072 45.. 1992 .470 105...269 114....000 102.. 2010: I ....226 43....982 35..610 64..998 51..509 102.486 30.409 45....701 22.242 22.769 97.450 60.602 50...857 89.. 1987 .100 105......171 100.495 42.007 60.839 54.700 96...944 91...091 36..350 29.887 60.....052 81...511 31.853 104.....375 100....494 103...589 44..Table B–6......556 50..000 92...313 70..067 103...........958 10....597 101.884 104.640 97.980 74....520 79...932 36..345 44....844 35..362 85...718 91.. 1996 .741 107.075 21......426 87.. 1984 .371 84.010 63..............340 43.. 1986 . II ...351 33..453 21.812 80.850 63....390 93...399 31.....249 17.000 107.447 104...........003 33.......895 31.....608 104....733 33.586 46....774 14..941 106...915 103..067 75.731 67............ 1998 .100 17.. IV p ......803 102....438 82..623 40....000 103.869 82.862 45...453 26.....958 103.543 23..061 47.697 28......672 39.000 108.897 27.....378 33.....890 95...150 30. 1975 .511 64.349 35...539 106.524 103..678 93...484 51.974 91.808 48. 1985 ..904 49.075 42..571 100.658 104.......453 105....301 30...428 41....747 30..013 85..049 125.063 29...971 44...250 105...058 21..157 Services 22..088 18.........836 49...689 23....184 26... 1970 .568 51...453 72...341 92. 1980 ...399 66.104 59......383 61....... III .672 77..637 102.962 106.....037 79.566 44...194 91.405 97..103 40...666 73. II ..... 2005 ......168 106. 1979 .721 100..........947 47....266 62...883 91....................782 70.846 36.325 98..140 105....327 74.991 43..041 74..925 109..078 92..363 96.063 32.134 100... quarterly data seasonally adjusted] Personal consumption expenditures Year or quarter 1963 ...708 20.359 81..410 44...130 100.087 105...856 18..417 87....213 69......975 52.....719 103....964 21... 1972 .........244 Structures 51...314 68...974 28..000 81. 2007 .....382 88.861 21.744 88..125 93.074 33.834 75...889 108.623 26.213 86.885 25... 2008: I ......355 105..214 56......945 82...412 87..733 43..911 116..874 Equipment and software 6.822 102...235 102.570 52..807 56.782 109.. 2000 ..180 124.882 19. 2008 .788 38....337 47.....563 39..409 84.500 58... 2002 ....599 103.829 21.......... 1982 .458 36..429 35......792 105.431 69...904 49......873 39...045 76.375 44.....093 104.742 99.....055 25...272 108..840 58...699 See next page for continuation of table.944 105.427 41...333 107.894 92..576 103.857 89..950 82.843 88.....314 117.....611 97.....295 45...790 43....684 41...783 38..592 90.. 2005=100.039 114.....050 97..204 26........145 100..399 11.216 29. III .323 21....859 33...696 56........541 77...591 63..274 37. 1976 .430 101.299 74..623 64...........381 15.000 102..148 97.986 57. 1965 ..749 100. 2001 ......740 100.989 32.480 45..740 49..616 108..095 106....886 30..........469 62.672 43....988 100..827 22..575 30....963 19...599 105......109 69......265 34.....945 106... 1981 ...478 63.....038 105..594 130...081 99... 1974 .215 102..032 51...608 55.784 58.....622 104.450 104..133 44.933 41...553 71.......303 31.066 77..110 67...760 87.078 106....614 87....971 20....333 79..264 88.514 98.....120 27. 1993 .837 80..881 23..263 55.445 93.394 103.657 104.643 53.......082 75.............152 60.399 86.301 64..700 45.....

.903 73.524 26.174 101......111 122......130 32....... 1974 .114 44..785 90.. III ......728 120.079 87.280 13.549 80.311 117.......594 52..095 85.886 105...698 121..059 50..505 43..577 80...127 7.....941 97...556 59...164 50..782 120..372 102........727 70.661 82.. 1972 ...789 138.011 22..793 128.546 25....... 2010 .. 1987 ....193 108..671 26. 1971 .897 43.... II .683 28..717 83.903 27.755 70.233 121.......581 9.429 32......595 57....392 122. IV .....722 22...838 105..689 99.898 53..817 49..488 108............943 29.......444 58.457 120....494 122.491 70... 1997 .170 81...702 12.324 57..713 105.440 38..067 100....195 16..... 1967 ........837 87...848 16.535 100....247 81.980 87... 1992 .837 23.875 107.....161 45... 1969 .474 97..213 16..........027 63...390 66..........022 33.708 105.......391 125..000 106.497 13...197 79...908 23. 1982 ..986 79.........628 73.419 14..953 94..910 102. 1990 .658 12......820 39.631 121.... National Income or Expenditure | 325 .311 102...371 17....359 102...........918 113.464 123....986 12.093 7.......666 130.464 106.578 11..214 19.310 101.744 97.........531 17..215 94....954 50... 1965 ..346 51..557 43..942 16.....340 84......901 56....981 63.199 104...020 98..262 12..386 76..149 51..788 93......937 111.978 77.378 99.641 21..146 29.000 107. 1970 ...733 91.....237 43..000 101...252 100.. 2008 .305 98..557 97......944 18....270 41...812 104....776 101.693 115..916 10.170 23.825 108..113 Government consumption expenditures and gross investment Federal Services 9.445 119...471 71......640 108..575 47.241 57..567 90......429 49...126 41.379 51.058 5...496 60....207 107...471 17.191 111.796 19...197 55.... 2009: I ..768 52...570 117..526 27...407 89........234 100...206 104.215 11.062 116.......177 124.588 60.........214 93.. II ..669 27.518 91.091 107.465 76..025 19...308 102...913 41......302 93.798 111........626 34.....347 52....752 7.897 25.941 106......243 56.018 56.158 13..846 25.898 18.098 46...689 99.357 98..519 91......074 9...573 73.728 11.756 56......381 107..009 9..001 85...420 68..720 125....835 127. 2005=100..856 77......907 104..370 54...677 100.556 50.291 91....971 36.. 1968 .546 12.940 109. 1995 ...481 78.. 1979 .490 107.250 26...931 15.173 24.. 1975 ...541 68.492 87..996 112.838 69..714 23..279 35.745 State and local 30.....471 61.020 83...374 83.....081 63.237 100.966 129.....204 133...677 58.090 121......391 104..032 42.540 9.633 50...182 88.473 102..649 118...501 102...806 94.408 100.961 128...351 85..005 52.031 78....081 116.....560 15..... 1994 .954 49...049 129.396 99.244 77.........895 107....908 85.473 100.766 100.....522 101.060 110.......205 30..000 103.576 111. 1963–2011—Continued [Index numbers.992 123.......236 22.. 1966 ..082 62.035 5...463 Services 14.490 80..977 130.626 21...090 127.807 10.989 73...537 107.078 67......544 123.696 112..086 58.....019 42. 1998 . 1964 .000 100...444 136....514 93.972 12.320 42.926 50............838 91...671 32..540 81....610 15..596 22.096 132.919 92....200 124.926 132...870 9.. 2011 p .173 50. 2001 ...177 97.813 78..303 72..759 86..514 64.151 24...... 1986 ..687 71..453 57.049 53. 2004 ..074 126....814 79.828 59..000 102.......622 111.073 120.207 78.648 52....066 88...577 104... 1989 .840 17.623 46...248 107..778 28...000 101.402 62.....380 30.939 47.206 138..122 51..821 107..585 74.630 55....296 13.168 33..340 71.394 131.075 23.401 84..297 121.000 108.985 125.564 52.920 108.738 45.363 107..815 42....000 89.118 107.417 128.......252 35..409 64........477 88..874 140...516 106..795 74..247 22..511 105..337 57..065 106. 2009 .250 48.802 64.077 46..352 123..951 68...551 134..771 86..837 105..243 114..934 108..363 137.....826 29.701 11.507 82.......845 64...908 114...156 75..540 121..774 117......205 108....112 111...925 27..605 10..042 21...076 107..020 18.216 53.490 101......577 16.....547 50...180 11..353 79...301 99........ quarterly data seasonally adjusted] Year or quarter 1963 ......508 123...957 20..119 71... Chain-type quantity indexes for gross domestic product............118 35.282 111.985 85...700 58..514 79.703 108.826 99...783 19...652 105..876 61.185 111..018 77...464 80.. IV .179 93..058 114......932 13...812 53.061 59.101 131..998 53.674 104...655 79..133 78.... 1980 ....654 11....878 43..212 100.846 117.256 25.335 99.309 61..573 62.085 54.. 1978 .....220 76.....112 125..059 13.933 68...256 127.030 58..253 79.262 126..572 12......819 117. 2002 ...411 6....341 84.128 119.......982 25....569 84..873 52...206 10.328 15..101 77..721 76...331 29.425 120.138 123......459 108.861 15.835 18.575 65.375 52..595 59... 1983 .782 93..218 80.336 99...772 120......995 30..722 47..496 25.518 113....691 106.969 65.878 120.435 13..004 107..855 27...955 80.........130 67..395 119.107 95..002 95.687 79.897 109......800 68.......618 125.......738 60.942 119.946 40.868 41....041 125....228 9....000 107.....090 83.000 109.788 Total 42. III ....471 8..987 17.020 108..483 38..240 136...936 79.....479 127...718 19....378 47. IV p ....061 135...530 107...180 9.535 9.399 110.......197 120.. 1973 .279 25..279 64.....536 20............. 1985 .704 99.213 84.......917 96.137 121....240 78.....564 138.358 8.038 125.300 74. 2000 .... 1996 ...761 88....839 98..813 36....245 79.160 85..662 14.426 56.195 120.561 75... 2003 ..316 73.....457 107.112 72.729 16....420 109..555 80..243 98.436 69....488 46.....110 82..072 80..860 28.....205 23..502 9.663 14.. 2011: I ...332 Nondefense 36...176 85...379 91.........044 118..303 83..233 30..689 17....080 87..192 98.499 68..318 84.424 100...687 92....874 10....026 41.594 37. 1991 .614 123......108 126.062 120.....307 26...016 12.695 105.365 119.953 40.758 79..829 81.102 82..748 56.... II ..390 42.891 51.511 30. III .756 109.131 13...790 63.969 119..488 97.500 88.816 108.. 2006 .556 77......367 6....458 18.567 44.867 111...885 123.006 22..779 107......637 100.668 100..725 59.........281 83.769 121........822 119..058 114..879 62....844 53..385 119.995 100..436 79..723 113.837 18.466 9...665 26...519 63.437 64....863 29.......Table B–6. 2007 .526 59...860 58.911 31.........880 84.........525 79..647 59.059 108...278 53.......270 79...... 1984 .552 32.161 107...943 15.181 11...817 101.....505 58.......185 91.092 60...099 108. 1981 .901 88.618 75......582 Total 60....945 95.115 85......157 42........000 105..... 1976 ..372 55......691 112....319 26..669 63....710 100....975 113.... III .376 114.433 128.433 17.885 79.958 44.842 82..534 84.105 25. Exports of goods and services Imports of goods and services Total Goods Total Goods 8.237 102..315 21.472 53..492 26...511 60.724 118...588 103.....459 113....705 80..641 77..351 88.....955 84.971 90...203 107.. 1993 ....579 6.386 24.071 99......442 15.127 103......433 122.......235 22.984 136.. IV .101 National defense 72..935 116.583 101..500 80...665 121.....779 17...789 102.697 66.....210 56.. 1988 .068 47.532 53....958 52.814 99....341 130.841 121.539 112...076 105.742 112...236 100.....115 24..........381 49.....461 Source: Department of Commerce (Bureau of Economic Analysis)...... II ...900 67.. 1999 ..941 123.....356 105........970 51.306 88.173 113.107 96..925 14...487 10.606 24..030 131.303 111.602 108. 2010: I ..423 78..106 120.396 59.124 54.857 86.998 38.019 61.737 81.... 2008: I ...573 107......197 114..010 89.....275 68.431 107...514 55...237 116. 1977 .891 110.357 95.392 118.168 42..432 20.210 21... 2005 ..698 101.479 122.292 85..

...360 107.316 93.952 54.....246 87.634 99.237 95........850 94...662 109.558 30.. 1971 .646 106......636 11...496 99..198 33.211 110.380 47.893 60.144 16.......451 101.. 2011: I .080 73.036 45........685 24......296 102.840 88.....555 119.294 73.196 104..563 102.....864 111.541 78..260 116...........524 See next page for continuation of table..100 83....817 52....745 100..912 103...029 90..414 106..597 104...049 100...057 64.........000 112...522 54.811 47... II ..563 96.460 24.507 104..597 123...710 27......612 100.939 83...154 84.996 93...163 120....102 21.....818 104.... 1975 .023 102...536 105..196 104.406 99....626 27.. 1968 .914 45..412 74.910 24...003 119.734 106......563 96.324 114.703 109.731 34..222 102......893 104..425 105.000 103..151 77..029 81..........180 76.......686 63..... 1989 ....626 23.180 74.....157 68...415 84.525 101.037 115.. 1984 ...047 69.302 87...000 113.536 111. 1964 ..184 68.757 96...254 19. 2002 ..843 106.647 121.091 113..803 55...752 109..090 120..958 103.750 105.....645 107.509 85...186 39.....487 106. II ..372 13.650 108.148 30.516 67. 1974 .......190 33...344 56.106 93.612 106..069 66.121 100. 1972 ..447 43...350 92..276 15.........996 31...162 111.704 96.846 108..422 77. 1976 ....915 94.465 116...143 12.......000 103.688 100......335 107.....373 106..199 116....716 32....534 25.864 85...048 107....838 99...581 69..870 95.....284 20. 1981 .. 1970 .123 60.326 55.812 81.......982 125..627 85....447 109...403 67..367 107...........731 92.480 69.835 127.565 109..........135 36.. Gross domestic product 19.025 124.....826 105..944 50..142 34.356 106.473 16... 2008: I ..637 123..501 106.088 65.747 75.. III .757 45..715 111....025 72...467 17.195 106.759 32.281 35....340 46......764 105......322 47.........305 14.618 66.769 74.646 106...380 114.....162 32..609 108.819 115.834 21...943 109...... 1999 .976 121.332 82.302 82.163 89....968 107... IV .411 60...000 104...... 1963–2011 [Index numbers.833 48.450 99.... 1987 ....717 107.657 105.152 88......433 106.. 1994 ...020 39.......039 106... 2005 .724 90.633 100.706 122..332 80.953 Residential 12.758 114.997 90..493 109. 2001 ..418 87.372 28...557 71.840 63.771 59..777 52....532 35.....374 95....390 113...102 77...604 123.....284 119..692 28..789 43....147 46.567 26.173 90.234 119...112 113.......709 46.710 71...424 85................483 95....524 120..078 83...709 109.632 18.....511 21..254 108...080 91......013 30..200 75........973 30........560 62.837 108.247 21..136 27.921 89.322 124.. 1982 ..386 111.530 109........064 88.049 53.909 106.....730 93....297 100...194 108........435 55.595 105.130 24...125 87.845 15.100 16....007 104.975 53...993 88.103 58.151 69.375 55. 1986 .... 2011 p .551 103.575 102..989 78.815 107..848 53.....048 102.900 100...819 20..401 104.161 106.136 111..... 1991 .981 110...538 78.....396 101.200 36....292 82.342 106....365 77..454 108...446 99..750 96..846 51...679 80.171 38......035 105....580 86....410 105...353 114.994 53... 2008 .....305 104.542 32...536 19.......... 2009: I ... quarterly data seasonally adjusted] Personal consumption expenditures Year or quarter 1963 ...816 75........560 107.......141 64...689 83...818 91..313 102.754 88.547 26.000 100...713 48.. 1996 ....100 102....699 112...003 13....013 80...427 95.112 64..663 50.441 100....801 91..322 20.....929 100..237 106.502 56.169 111.449 89.298 76..693 104... 1967 ..680 58..127 92.......364 102. 2003 .482 . IV ...206 37.144 55...... except as noted.317 95.......664 17..818 67....328 30..366 51..107 40..538 129.....471 96...572 14...... 2000 .....796 40....694 105....424 105.. 2005=100..490 121......261 92.065 59.737 72..204 111.916 67... 2004 ......274 104.777 33. 2010 ..008 Equipment and software 53.. 1985 ...323 67....220 126..432 106.759 Total 33.518 15.....888 91...304 Services 14...601 62..453 74.011 58.027 107......866 24.183 109..852 117.399 122....912 108....... 1965 .........863 49.282 109.637 102............286 Total 26..971 34...427 63.860 99.290 19.....913 56....927 44....479 103..774 110.948 58..568 44....106 47.741 27..786 90..571 42...002 86....642 33... 2006 .........994 83.......605 125.682 115..826 76.435 89...560 26.359 22...983 Nonresidential Total 25.181 92.429 48.000 101...238 37..247 109.293 105..... 1993 ...785 16..705 59.....945 20..... II ......852 109.....258 37.703 20... 1992 ...421 42.784 101..112 126.877 31.265 110...815 107..315 90.410 86...901 13.209 104.......437 103.235 61...079 54........874 61.. III .964 112... 1977 ..687 107...089 60.....640 55. IV p .236 71.837 100..174 88... 1973 .497 105...137 46.....536 26....778 94.048 64..........994 56.........326 98.799 104...499 108.530 92.666 17...274 74.753 76.561 83.422 90.430 102..........692 25..579 72.621 14.....209 123. III ......485 25.543 100..699 108.........818 88...214 103........535 37...666 114. 326 | Appendix B Gross private domestic investment Goods 29. 1980 ..953 93.857 14...801 12.863 19.....360 63.087 79..134 96......094 60....106 105..883 32... 1983 ..269 113.......... IV .199 105....008 56...052 110......107 109.. II .218 108.565 129.770 111.589 19.000 102.....302 106..077 22..797 45..491 54.409 58...623 108..... 2007 .......083 90..... 1969 ....584 112..834 26...295 100..........463 113.....780 125.....851 101.735 97..479 43.424 29...072 86...696 95.784 100. 2009 .030 120....261 106..559 72.......828 69.Table B–7....811 113.640 26.....347 106..442 Structures 11.541 88.......041 127..673 112....794 35.....872 105.947 120.......831 58........801 93.973 13.743 106.250 106......492 97.435 101.567 45...917 79..238 105..433 86..155 124........275 97......595 99....203 38.451 92....000 104..070 77......639 111.645 22.... Chain-type price indexes for gross domestic product.643 102.....231 108....636 89.485 30...589 109...903 49...987 77.965 61.747 113. 2010: I .237 105.....028 78..472 29.......412 99.811 104.000 103.913 29.555 43.966 36..367 107.. 1995 ..486 61.149 89.. III .605 50.935 81.......310 128....248 101.349 25....194 120.062 106..677 99..........125 96.370 110..154 104.412 106.415 80..525 47......941 106.514 57.802 40. 1990 ......592 102...288 79.... 1966 ......... 1997 .907 35..352 90....580 12.142 22....675 34...510 104.....808 66.670 28...809 96.. 1998 ..785 78.902 39..182 101...192 94....106 50.285 19..070 100.001 54. 1978 ...077 26.307 107..789 76.. 1979 .412 108.475 123...935 Fixed investment Total 19.....473 79...574 116..653 60.895 51.........657 99..339 102.890 64.......628 76.889 95..117 126.695 126...568 101.513 110... 1988 .686 96..755 105.906 102.602 83......602 78..833 53...219 47..740 40........339 15.....047 35.324 18.969 110.441 102.578 108.......404 44...723 105..081 107.404 87...922 119.939 37.732 111..283 91.870 80...811 101.705 42...240 100.587 106..000 106.....606 35...040 23.941 102.658 97.......000 101..268 89.....695 33..392 99.525 106.393 90...689 30.286 104.655 97..157 91.556 28..085 89.743 99.755 106.124 28..350 36...313 107.417 80...

1 1..0 3.053 35..8 1.774 116...........6 3.240 112..976 40...301 89..751 108..... 3..242 107...583 34..938 108..214 119.....070 68...131 107.908 39.035 26....291 109.936 109...... .204 86. .788 78.276 111....6 .469 32.... 1980 ..8 Less food and energy .. 2000 . 27.817 112.886 86..071 20..334 15. 1984 ..225 111...612 88...315 30.....614 40.. .............913 110..723 32.3 2...042 90.5 2...4 2..727 43. .. 2010: I .446 44.892 25..529 20..0 4. II ....093 114..264 108....798 16..630 92. 1966 ...803 111....980 76..........483 85......302 34..028 13.3 2... .123 79..037 15.203 25.1 2.056 110..397 72..... .. ...402 114.830 76..3 9.471 25.057 111...406 78. 1976 .. 1979 .100 42..201 54....856 68..234 100.... ...922 92..2 2.915 56..598 52..543 122.647 108. National Income or Expenditure | 327 .. ....328 35...523 121..7 6...384 94.647 112....900 70...027 87..775 57.7 1.887 19.......879 79.443 66.... 2006 ...825 51.444 15..070 94..070 14..0 2......6 1..8 1.2 1...434 53...653 116.617 40..297 21.698 90.670 37..461 112..158 32....959 110.812 21....917 66..1 4...293 13.2 2........ 1998 .477 92..944 104.623 112...7 3...276 68.7 2....408 57....... except as noted...886 82......750 116.546 110.....379 21..672 67..853 44..539 77...994 16.880 32..497 62......5 1....5 1.5 3.1 3. 1985 .531 100...6 ...210 93..605 63..456 108..........893 110....774 100...002 72.....3 3.. 1994 .....8 1.. III .....187 111.689 91.883 117.549 34..734 50.7 3...5 2......0 –1........ 2001 ....991 111.........6 2.....351 72.517 18.995 15.....2 1....215 69.833 48.243 90..318 91....326 61..517 56.763 77...892 113......586 30.606 67......331 115....3 5.000 103. ........140 111.9 3.6 1.. 2005=100.754 113.280 57...431 76..198 91...000 103.....865 69.945 20....834 114.....424 109.3 9... ......759 114....796 34.1 1.0 8.....143 22....402 109.... ...987 112.112 117.....625 93..2 2..000 103..992 30..069 91...8 1.961 109.......5 5.370 122.7 2.592 110..7 2.......005 15.335 100...1 3..000 104.062 100.....5 1....544 87..752 72..322 93.779 54...654 109..900 48..4 2....5 4.993 36.775 50.2 2....1 ..647 30.182 117..908 115. ..910 121........5 1.576 109..522 69.482 68.580 110.171 109......620 15.561 111...444 118.535 15...898 28...743 83. 1990 ....034 86.116 20.....101 69.188 112...141 19.032 121.....119 118..994 114..696 58.505 32.... 2008 .931 79........003 90.6 2.8 3...541 59.9 1. ..............514 39....283 92.146 121...5 4...574 55.7 3...008 89....975 46.798 25..... 2 Quarterly percent changes are at annual rates.346 73..445 121.027 111.. ....383 23...898 111..... ......524 84.115 State and local 13...646 115....506 116.464 65..8 10.699 21...5 3..326 117.516 27....603 58..610 110.753 111.795 88.........624 90..157 80..779 100..4 2..898 22.083 113..542 51.645 61...223 29..........201 87....245 114.520 79. IV .425 94..468 106.000 104...179 48........... Source: Department of Commerce (Bureau of Economic Analysis).3 3..544 109......982 109.4 5.502 110..047 77..774 96.440 19.....810 86.411 19.7 –.002 54.344 86.282 96.917 49...4 6.249 109.000 113.1 2.080 27..504 63.6 1......575 41. 2007 .1 1.....802 116.671 16.482 85....1 1.. ...572 114.898 112...8 3....252 112.. .174 91..137 15.165 51..642 114..734 113.722 84..... II . .824 86..0 1..000 103.8 2.000 104..725 73.4 .287 18.466 62...775 81. 2011 p .524 20.5 1.074 60..074 55..909 55.876 Gross domestic purchases 1 Total 18.6 2.375 110..535 1..895 100.....002 43.311 90.048 113. 2009 ...743 109......742 36..011 116...938 58......975 105..757 115.474 65...127 105..421 21..045 31..448 52......080 113..413 117.900 31..238 37.. 1997 ....380 114.....1 1....582 23.182 118.270 23...102 20.245 30...490 125...601 74......042 35.024 15...095 79...903 85. 1974 ....884 61....679 60.........594 25.5 1..1 1..545 79........614 47...7 6.044 15.690 14.114 31....827 116......... 1975 ..9 3.997 124. ............077 85..295 110.9 5. 1972 ..030 119..065 110...0 1 Gross domestic product (GDP) less exports of goods and services plus imports of goods and services..340 109......768 48.......568 65..421 108. 2011: I ...266 43....617 117.209 14.607 66.... III ....5 2......4 7...... .......488 75. 1964 .721 123....386 17..........1 .726 111...979 110. .....717 75...9 2.... ..6 1...080 110..698 115..8 2.637 109.902 111.....0 2.517 77..218 56.....2 3...584 115..225 81...655 113. .....593 111.587 25........6 ..1 2..2 4...650 94....5 2.666 117...404 119... .267 74.761 111.252 73.900 111..236 60.......Table B–7.. ......438 114.029 81....013 18.1 2..949 122......436 78....438 73..0 2.753 74.996 21. 1987 ..703 109. 2005 ...... quarterly data seasonally adjusted] Exports and imports of goods and services Government consumption expenditures and gross investment Federal Year or quarter Exports Imports Total Total 1963 .5 2......516 89...577 56.....219 76.......315 113. III ...103 114.635 57.7 1...019 113.7 3.. 1967 ... 1999 .168 94.945 17. 1992 .1 1....860 115.1 2....237 106..379 15...4 3..367 116......882 63... ..746 23.......240 110..712 71... 2003 ... IV p .......455 113....256 109.654 21.....655 76..955 110...764 87....8 10..576 117.896 22......2 5..333 115.720 20..621 60.164 100.888 39... 1977 .......949 70..842 109..321 112..... 1971 ...506 14.703 110...4 2..6 1.. 1963–2011—Continued [Index numbers..186 108..947 82...2 1.......806 75...537 113......036 82.075 95..021 93.704 123...857 51.3 5.....4 Gross domestic purchases 1 Total 1. 55..498 93.8 3....074 91. ...8 1.717 53.404 80.851 94..906 57...856 64.209 24... 1981 .907 85....9 3...5 1.328 79.443 92...023 29..202 111......914 96..846 89.812 117...821 83.484 33......3 5.....624 61..057 34...034 53...690 110.000 64.977 57..1 .0 3..354 106....674 108..271 119.228 80....286 43....879 80.405 65.7 3..642 59.231 27.725 118...576 109....1 2..924 63..... 1969 ....249 112. 1988 .539 100. 2002 ........284 21.956 41..486 36.4 5.1 4...516 86.0 –4.. . 1993 .......4 3.319 54.215 18..472 109...468 85....522 85.494 Final sales of domestic product 19.093 113.989 48......449 83.810 23...863 115..310 36.495 24.....358 57.337 82....377 88.......8 3.501 52..747 117.. 1995 ..240 106... IV .8 2.958 90..4 2..154 85..... .....571 117.953 53.1 8...488 111....757 19....719 109.5 2.0 .000 105.....879 93..5 2..786 48...3 1...1 3.....674 83...............033 64.. 2004 .285 110..874 107....520 17.000 104..000 103..320 79..4 1......415 26.490 110..799 93.953 58.0 .3 1.902 117... 1996 ...757 122....783 110.....967 106..0 9.222 68...191 19...3 3.123 96........372 123..024 95.627 120..005 33.513 84....851 92....030 117...662 14.. 2008: I ......977 28..696 91.. 1983 ..353 109..120 81.350 37...464 59.2 1.809 86...443 108..161 75.......470 116.8 3..043 75.017 109... ...7 –.571 113..238 108.485 111....2 2. 1965 ....8 1.......1 9.214 96...672 118..2 2..855 83..171 87. .. 1970 ....945 91.024 84...793 104.251 111..128 29..791 122....107 107...911 27.. 2009: I ..1 3.1 4.704 22.... Chain-type price indexes for gross domestic product....835 119....988 24..789 31.......363 20..794 14..226 19.....188 83.659 94.5 .708 17...102 74.372 National Nondefense defense 14...669 45.506 67.624 58.......046 117..239 113...5 2...654 63.914 16.1 4.9 3... ..8 7....906 46. 1968 ..2 4..904 92...798 20.673 115....494 70.848 119...834 17.537 90.....190 111.785 119. III .781 58...0 1.....6 2..440 106..4 3..327 19.220 84.691 85.8 4.. .1 2..320 104...406 85..309 109.........8 3...496 117.581 114..456 112....063 93.. II ..904 61.249 107.236 13......849 58...... 1978 ..709 92.179 109..848 92..9 . 2010 ....2 –..526 22..974 55...858 109.341 119..444 113.418 35..810 90... ..584 96..147 114..878 110.....765 72....526 20.. 1989 ..666 117.989 23...519 33..548 66..816 51...978 67.970 27.7 1.865 59..410 29..081 114..484 86.326 111..569 59.021 26......3 3.9 5...2 2..9 2..134 27...704 61..019 86.1 3.601 82..104 16....5 9. IV ... 1982 ...873 Percent change 2 Less food and energy Gross domestic product .577 63........642 59...021 113....981 113..4 2.731 113.. .830 71. ..610 111..9 4....5 9..1 2.8 3........ 1986 ...854 76. 1973 .....819 72..463 89...045 102...2 2. II ..696 113..347 84......852 109..1 .415 100..652 109.....9 1.605 112. 1991 ...034 70.

9 512..8 2..0 6.1 5.4 7.3 78..3 2...147.2 2.5 –179.295.006........605.7 425.3 1......1 –8.101..1 –160.878..7 228..384.1 607..7 1......117..2 2.9 884....2 3.8 1.070.6 1.0 628..5 14..............865...5 368..454.211.793...908.172..6 1.9 2..2 574.6 4.268...0 3.395.4 5.818.4 3.028...0 14...3 29.....9 1....3 1..5 1.. 1975 .0 1....8 619.2 30..148.....2 12.4 –33..0 7...410.. 1970 .1 –41..2 25.5 878..3 27..3 29..1 106.8 14..5 14.8 66..5 439.3 12..0 1.3 1. 1964 ..296.....353...3 665.567..4 14..040.6 . 1988 .4 330.5 10....193..3 7.431....5 10.073..8 1.881.8 3..897.5 –18.. 1993 . 2011: I .799...004..5 1....8 3. III ...6 397.....5 1.....8 663...0 1..809.4 1..6 408. 1981 .050...896..... 2009: I ...5 13...0 9....368.2 –19.. 1969 .7 3..6 2.164.758....2 6..389..6 100..100.0 1.6 14.5 18.2 2.3 1....1 2.....5 6.8 14.262.2 846.1 40..1 22. Gross domestic product Final sales of domestic product 617.4 4....1 15.....5 –200. 1963–2011 [Billions of dollars..4 Services 2 286.2 330.5 3.6 424...4 19.5 27..7 424.6 1.0 108....851.8 3......5 2..453....3 109....1 9..396.6 706.6 2.7 14.2 640...7 60...743..8 15..646.5 4.0 5.866.7 60........ 2002 ..8 9..4 370.....5 935.1 1......035..6 166.175...5 14.4 16......0 16.6 1..5 1.2 Nondurable goods Final sales 144...2 2.943.7 34..029.0 4.6 27...6 5..833....5 178....6 14.205...8 71....4 1...005..6 307. 1996 ...0 –47.562..3 529..4 909...1 13.5 –200..903.....7 388.7 6.4 1......5 3.374... 1979 .912..7 178.118.... 1998 . In current dollars......8 1.0 2..2 11.3 3.544..1 –82..701.. 1983 .......433..7 3.080..8 18.379.0 14.9 2.6 311..... 2 Includes government consumption expenditures....3 20...2 5..2 7.8 9.101.....7 1....9 273..332.3 9....6 19..2 582.4 54.2 3..1 9..7 2..110..1 44.5 335....475.2 5... 1991 ......5 872.3 20. IV p .491.0 529....0 4..3 1.159..342.992.231...2 9....8 –14.....678...794.233..7 1.2 1......293.1 2.031.7 14...5 2..6 1.1 9.253..1 –66..5 –197.548..2 9...7 432..1 18.4 146.455.844...1 3.430. IV ...9 212...5 14.....2 10..7 1.6 262..0 2....8 3.0 17.......7 11.1 1..0 1..........8 175...3 939.6 422.775... Source: Department of Commerce (Bureau of Economic Analysis).126..1 –113..1 323.5 3.4 17.1 –118.439..0 89..6 519.4 406.1 106. IV .......8 9.013.0 3.1 9.1 497.9 –5..7 1.4 –1...6 1.7 13.3 –16..2 9........0 19.034. these services are valued at their cost of production..0 1...199.7 14.261.....5 198..5 499..0 6...920.4 5..4 1..7 6.759.1 Durable goods Change in private inventories 5..7 973..8 1.8 72...1 15.4 14.0 185.3 821.499.3 6. 1971 . 1972 ...256..6 9..2 1.9 1.939...516.5 287...7 2.7 13..884.805..2 –19.8 63.885....137.7 3.8 –2..8 8...755..3 –44.9 1.1 4...080.460........937.3 153.0 –6.0 29...124.943..8 397....5 14. 2007 .0 39.7 128.....729..4 3.5 1....054.0 1.0 6.8 14...811..623.2 1....226... 1978 ...6 45.4 35.085...6 814.6 344.736.509.286....3 554......4 2.273..2 2.6 376.7 3.5 5.6 3.8 18..1 1.131..8 4....... 1995 .9 –18......9 3..2 1...2 19. III .3 37..3 –16..326....6 9......0 4.9 50..3 352...0 634.8 273....5 4...8 54..6 1....277.8 1.........294.....2 1..1 3....3 12..6 1..317...540.7 1.8 3...7 28...9 727.8 984. 2000 ....5 3..5 21.5 6.9 22...7 208.0 8.2 –7.0 533..3 1...734.6 –44..4 1.9 2.0 3.2 1 Estimates for durable and nondurable goods for 1996 and earlier periods are based on the Standard Industrial Classification (SIC)..8 11...1 9.3 3.1 362...0 4.. 1985 .....6 9.5 –38.. 2009 .020...1 14.5 277.4 2....036.........5 696.9 1.0 2...498.5 4..015.8 1.7 5.8 959.3 19..124...985...9 774..8 9...667.7 7.8 14..1 1.7 14.788.5 9.4 64.7 2.9 313.0 3.452.1 3.6 15.....5 2......363.7 20.038.......008.....7 13.633..3 670...305.4 3.0 17....759.6 3..2 15..164...036....9 50..8 9...101.7 1.9 3.8 1.727.484.5 5.526.2 14..992.215.2 2..535.012.383.2 14..6 977.041..5 –...900..1 35...0 999.359.5 2..485..3 337..9 374.271.4 9.........3 1..6 14.2 13.... 1968 .864.0 –..4 150.....4 14...709.9 9....5 1.4 4.....5 8.4 2.3 321.0 8..8 3....1 822.911.2 4.7 341..087..7 3........637.549.3 25... 2010 ..9 1.1 5...8 3.2 1.6 358.0 17.9 Change in private inventories 1 2...382.8 –14..990.488....122.8 552.4 926.4 8.8 3...0 –34.4 32....5 15..7 14.....819. 2008: I .8 15.630.6 Total Total Final sales 258..7 3.5 –197..7 1.. 1966 ....142.7 254....767...8 63..1 15...4 Structures 72.261.292..... III ..4 84.......6 1.1 478..2 34......606..3 3.0 –47. 1976 . 1997 .8 989.8 6...3 2.013.333...800..929.......1 9.103..8 4..7 78.0 22...1 1.929..3 25.7 33..1 1.3 12..102.221.. 328 | Appendix B . IV .9 703.196.9 3.3 11.5 15..195..3 3..3 9.....5 6..8 –49.9 165..2 7....5 751. II .9 7.5 7.5 1.154...8 9.0 –6.3 7...2 226..3 11.037...8 31.....6 119......090..0 53..1 3.....3 –16.9 1..893..4 1.943.571..094..1 4....9 –7..719.....313....2 –5.....377......2 –4....077......365.9 162..9 3.187...7 42.0 63.951.7 3.756.999.8 54....6 719.170.5 41.814...3 –44.699..9 2..8 13.467..226.7 480..7 2..0 63.268..838...2 3.. 1992 .875.3 14..3 612... 1967 .4 1..425..... 1987 ..010.9 2.882.0 60.....8 4...4 1.8 66...040...1 18.9 1.......485.1 22.9 11.8 65...625.6 14.5 1.7 558.....8 9....2 4..176.119.8 3....9 1.4 1......9 531..348......7 3...214....366......8 458.7 4.2 3...5 –179.6 3.1 –41.025...959..5 1..573.789.1 9..382.459.2 Change in private inventories 1 3.5 27.208.612..755.9 3..9 483.4 9.1 44...4 –78..0 10.043..6 186..9 10....8 14.3 1.....0 24.923...7 1.6 4.3 37. II . 2001 ....9 1...055.0 295.0 672....5 592....853.2 1...1 9...8 1....9 1.9 47.2 949..2 2.788..0 1.1 –2..2 1..208.7 9...2 2...8 3.0 53.893....6 3.1 3.1 2.6 2.4 1..807.237.1 787.. 2005 .6 –3.8 1.. which are for services (such as education and national defense) produced by government..8 65..1 6.3 2.4 1..4 293.081.149...788.482...8 1.8 4..0 547.7 1.0 60...1 3..8 8...6 1.4 21..5 2..073..2 2....7 832.3 1.8 14.3 1.825.8 709. II .4 16...9 2..293.654...3 15.4 8..007....8 7.2 1.4 1..3 1...1 588.7 1.9 1......867.5 10..7 38..685.7 1....7 3.145.291.343...076.2 1..021.030...3 1.5 –.7 8.6 14..414.087..016..099. later estimates are based on the North American Industry Classification System (NAICS).6 900.3 131..6 4..0 29.5 9..6 145.114.7 62.0 3.552..4 4.743.0 4.891..4 64..431..3 2.0 13.4 462.3 638....6 ..9 522.4 11.7 34.630..4 1....9 4....321.260..1 –82.....9 565..9 1.3 13.9 –5..8 304.2 14..9 9.1 9. 1989 .731.087.824.3 17...2 30..9 22.0 2.534.217..8 6...953.0 –6.......982.6 1........ 1965 ..0 2..4 4.4 2.783.8 31...7 88....5 –37.3 863.642.6 472..8 1..9 758.4 21..3 35....1 658.4 23.6 1.5 1.... 2008 . 2003 ..751.9 –3.2 24. 2006 ...777..865.973..1 –35.4 1......4 3...786...775.126..2 2..815... 1994 ..9 3..4 8..072.4 –56..9 –37..3 2.4 243....939......716.7 –13..163.6 3...7 38.4 1....617.1 2.508.185.5 3..6 515...847..4 7.1 726......097.9 6.7 62.703. quarterly data at seasonally adjusted annual rates] Goods Year or quarter 1963 ..7 163..9 2.402....5 361.167..7 191...844.336.3 17..153..0 16.......0 162...3 3...9 4....0 3.1 –66.217.9 47.928.324.2 967......644.085..309....9 5... 2011 p ..332.570.1 1.4 1.5 2..228...663.5 –18... III ..9 14... 1977 ......0 –6.7 1....6 1..2 21..6 27.....058.....8 2.3 1..5 32.8 842.9 1....115.081...6 1.3 976. 1982 .8 975.3 12....148.7 252.9 14.5 4.1 –144. 1986 .174.. 1974 ....930. 1973 .5 2.2 1.7 Change in private inventories 5.077.1 –142.4 62.240..617...074.0 37.524.6 5.006...8 71.6 3.4 1..1 345.603.....030.9 15.335...4 4.3 78....9 14..5 9.8 6....807.8 2.. 2004 ..877.824..125.225..800.268.668.2 13....8 3..304....089.. 1999 ....909.5 7...6 Final sales 108...4 4.432.873.2 18.1 4.. 1990 ..0 475...953.....4 13....9 1.382.153........8 72..543.8 4.7 31.232.415.290..2 –4..485..9 14....3 14.3 9..2 –23.126...1 1..2 2...922...3 12..3 785... Gross domestic product by major type of product.5 1.630. 1980 .8 689.184..8 1..8 69..0 2...0 1...199.2 17..Table B–8.912......865.. 2010: I .5 5.731.087.854.943.....5 1..2 2...6 773.009....022..015.0 1.6 986..2 745..491.. II .539.4 758..7 748.4 1.2 237. 1984 ..9 9..6 611..1 –160.452.2 10....0 13.5 –38.684..

573...... .2 8... .............. .......588....4 71..4 3..061.8 13.......... ..... 2002 .0 1.....3 10...335...0 3.....0 2....3 1..8 3......706.5 2...........5 22... 2007 ..040... ...............0 4.. ..9 3......281...1 663...9 12........3 –132..0 866... 2004 .9 886....... ... . ....4 13.....5 4...2 1....903. .......997.... IV .......2 13....6 961...8 7...333.875.284.....5 13......366.0 8..8 5..9 2....... ....4 27......884...774.............0 718.. 1..881.204...2 –50. ..........8 4...177..................834...9 22.088........................2 4.......309....7 6.2 1...883.9 8.7 21.271..... –3........7 39..... .0 2.6 905.8 1..... .....9 3........289...0 2.....6 –1.......5 12..105........887........502. 2009 .017.648......2 787...363..390..1 4.....384..........5 12..0 –12...9 13....7 7...................3 39.168...3 3. .......... .......9 30...167........8 874.......4 3.034.502...954.3 903....4 9..2 918....................... .................4 2...202... ............267..610.....4 3...2 8..9 3..905.........475...5 1...........4 1............... ..2 4..425....4 Durable goods Nondurable goods Final sales Change in private inventories Final sales Change in private inventories 1 Final sales Change in private inventories 1 ......8 15. 2010: I ......169.058..208.....0 3..0 11...682.....0 13..... ..3 13.370.1 13...1 3.912....641.5 60.....0 56................382...1 3.....2 77.....6 92...... ..................... .. .........5 13.......9 5..2 8...4 27....1 1.........9 1.894.5 12.....2 7....1 35..1 16....8 35..... .8 35....1 –80...6 6.....1 2...4 17....208...............2 –38.2 1..6 3.............992.8 13..5 ..6 92..9 13..............830.........9 742..958.601..1 969....8 12..........6 16.............0 ...2 –38...2 2.....858....... .2 3........1 1.....3 967.... .1 8.833.....522.......... ... 2008 ....939....... ... ......034........223........259..... 1999 ..............6 3. ..870.................9 971................5 38... .........367.............924......927....004...302...6 1....5 6. .....1 9..836.4 2..1 2........... ........1 39.......5 11....801.9 7.........1 5.......577......045....0 12......078.... ...9 12.142......6 4...147.1 2.. .0 5..............8 1.......847.090... ...9 64........3 32.0 8. ....201.836... .. 1995 ... .717. ..... ..0 12...517......8 –30........6 2......819...6 719.....3 7....2 2. .....053...582..........080.......... IV . ....... ..6 12.363....885.......245.... ..5 2.........7 10...714.0 57....0 735...337.0 3..325............. ...4 1...............6 11....8 –46....380. ...6 4.916.... ...8 2.........703...6 9.............004......687.384.2 2.......... ..........4 4.. ..2 3...811..0 Total Total 673. 1973 ..9 951.......2 21..822......9 12.. . .9 10.........9 3..309...389.1 3.....216.899.......... ..... ...4 7....211.......8 1..569........ .....785...6 39..263............008......0 1............. .2 694..4 13.....994.....4 –32... .723...254.750....1 1..............6 13.......049.1 3...8 9. .766.2 4............922..6 8.6 68..... ...038...334..159...310. .339.150. ...9 1.1 62...................5 12...5 1........9 5....3 50.9 12. 1966 . ....3 32...9 6.... .... ..6 13. 2005 ..266.. 2003 ......... .. 1972 .485.....972..9 1.....2 1..6 1...... ...5 663....1 5... Gross domestic product Final sales of domestic product Change in private inventories 3....469...206.422.....1 4........... 1997 ...576.............2 807....... .....097..2 1......5 4.. ......1 7. ..1 13...4 657...299..425..124..7 1.9 64. .. ........5 –14......9 11.....3 12........... ......1 3........2 13..280.......1 9.. .120....6 2..710....194....803..2 862.....792..169....... 1971 ...8 887. 2011 p ...3 –161...2 7...... .. 1.......1 –12.834...092.. 32.6 1...3 3......9 12.....5 11.......2 1...6 973.663..4 7..9 7.958....1 33.......5 869...0 59...4 3.....7 631...6 1... III ..........158..3 673... ...........369. ....1 29..1 7....869......9 1....3 –144.5 27..9 1. IV .0 2......8 1...259............606............6 –183...5 1...... ...3 69.....5 60.......4 3....4 2...1 902....7 –36......9 6...095........9 47..347.. .....1 8........... Real gross domestic product by major type of product.566................490... .......852.........4 3..0 4..034.7 9.. III .....862.2 –41...902..7 5......672...... .9 4...5 4...3 1..046.3 4..8 13.6 28.....961....3 49....245...........231..6 1.....202.....155. .....0 811...176....3 5.....5 28.3 4........790........3 13....0 9....660.... .879....216.659...340....3 43..6 30. . .....919.937...0 2.9 58.4 5........3 8...........6 3....7 8...307.....875.3 –45...833..921......240...873.....0 848...0 1...... 1987 ....0 56.634..1 5.....7 78....7 3......508.......1 –105.................. ..............8 8.1 2........8 17...702....769....0 1.1 13...341................6 796..............277......... In current dollars..5 5....6 13.............236...409. 2006 .... ....5 –41......246...6 1....090....139......2 25....226.......8 –30.. II ..9 4.8 34.. .......1 1.5 39...533..... ......2 3....211...... 1968 .4 3....131.849.9 13...6 25. II .. .......... .. .449..........3 25.982...196.....0 –19..4 20.8 12..2 5. ..4 8. 2011: I ..225.801..4 12. .2 2.........3 2..8 1 Estimates for durable and nondurable goods for 1996 and earlier periods are based on the Standard Industrial Classification (SIC)..0 25. ..7 13.. 1985 ..........3 12.4 1.5 8.. .9 4...0 1............3 12........ ..6 1...Table B–9.6 1.........8 995.....3 5..3 66....... 2 Includes government consumption expenditures..........130.... .....4 2.... 1970 ................082...730...4 7..154.269..9 13.129...........704....257.0 931.4 5.6 2.182.......... ....827............... .......... ..871..867....859..9 2...0 3........ 1986 .. ...115.. ....792....234.. ..6 3.. .3 1..1 1.6 4.5 –14....... 1976 ..6 13....331........3 3........1 –27.......9 3...0 –9........8 7. ............ 1965 ....2 38............... ..8 3....7 –56.. ....2 6...........162............920........ ..8 13....... 1977 .....027. .6 –12.. ...... ....1 39.539.7 –7....181....5 33. . ..0 902..200..5 1....4 2.. ... which are for services (such as education and national defense) produced by government...075......... .7 4.......6 3..0 3...356..199...4 3...........404.234.1 4....0 29. 1969 ............ .......334..941...0 .3 38..312.......2 2........9 654...8 8.837...4 71.....5 8.2 –41. .............895....8 1. .......4 3..161.......6 –12........4 37......3 882.993......661..786....669.. 2000 .............2 1..9 30.....1 5.508...598...... ........6 5.8 3........4 29....3 1....9 3.....181.0 6...2 1.253...... . 1964 .9 1..............8 30..552..2 18....3 8....2 1........5 39..783......266.451.1 3.... ..189...9 869..0 4...... .740.........0 1..... 1998 ..9 3......189.6 1.....8 1....... ..100........136............. .140..7 3..... Source: Department of Commerce (Bureau of Economic Analysis)..5 12..027....9 3..... . 1991 .. 1974 ..819...1 1...1 12.......... .............979.9 1........... 1981 .....216...0 941......654.....5 978...0 8.1 4.842....0 11.0 7......9 1...4 1.....115......0 4.957.......9 1......... ..0 1.....1 31.......877..031.. ..7 1.............8 1..516.. 1975 ................742...115..4 1.9 3. .0 8... III ...7 13..828.... 2009: I ..1 –110.6 8...0 3..... ......7 8..2 Structures 591.........7 5. ...........845.5 37.5 7.. 2010 ..4 3..................1 1..2 77.6 –183.850.086. ....6 4.651..7 8.........6 3....194.............. .3 5... ... .. 31.... .0 4.......3 1.......3 8..4 846............. ......268.3 3....722.....6 68.101...571...635... .... .607.961.....918........9 6.. .... ............789.. ..1 –80.7 964..216.....0 1.......8 3.5 –5.. ....7 –36.1 1..471. National Income or Expenditure | 329 ...........905......8 4...........587.636..................... ..025...781...599....2 40.. ...569...1 –2......2 12....664..... II ...5 1....065.9 5....9 58....4 18.. 2008: I . .... II ..0 4. ...0 3.....0 12.1 2......5 8.. ... 1983 .. ..0 1....1 778......4 8....325....4 9.8 1.7 3.. ..4 17..................258...8 –21............4 3.......7 3...... . 1979 ..411.....8 1..566.1 5..5 1.......274...9 41..403.......0 13........373...6 856. .....974........0 11. III .3 66.....8 17.....0 1.5 13..266....3 38.....5 12..663...4 1.....643..9 2..6 2......8 –33.. ......441..........843. .140..............063.5 703..............5 790.7 –56..... .............7 –46..3 –144......914..... 1978 .... later estimates are based on the North American Industry Classification System (NAICS).....5 4.4 930... ....... ..6 –70.131..... ....422..0 59...820..2 8. ...........196....284...128...133....1 11....1 3..0 1.772... ... ....... IV p ..5 1. ...5 3.. ....863....622.............. 1994 .......282..0 1..2 10...9 ... .. ..... ...............0 8..... 1996 ..277....813.......... ..7 3..658.... .......8 3.....0 4..6 –135....170. .. 1992 .......2 10.. .........1 14....................3 49......4 1.....732..305. 1990 .8 4..........6 28.607. .....865...0 965.....8 8.286..712.4 988... 2.......7 1.016.... ...9 884........1 723....... .770... ...341.1 3.. .6 4..129.. .3 50..9 2.....197..6 31.....623......0 6..9 40. .....173...694....160.....7 4..6 16..789......9 8.. 1982 ...0 1......0 –178.... .......2 2..5 878...177.... ...303....8 3.........3 –6.........1 872.8 29.........7 34..4 1..0 1........ 1963–2011 [Billions of chained (2005) dollars...1 2.....4 5.5 36......................1 31... ..... 1980 ....0 5........873.. 1993 ........... 1984 ...... quarterly data at seasonally adjusted annual rates] Goods Year or quarter 1963 ........7 11..9 –15.1 2........7 ...736.........3 886.0 12...... 1967 ....415. .2 2...6 8...116.......6 1.8 13.....427.211....324.4 4.. ....7 6..324.....8 3.....774....118...989..... 2001 .....276.........7 Services 2 2............. ...125......7 1.186.340..860.984...1 –2.. ..........400.5 2...7 1....4 11....5 13........0 –178.......020.. 1989 .. these services are valued at their cost of production...836......3 17....028... . 1988 .0 8..1 45..261...4 823.7 8......046..543.......7 2...313.7 3................2 6..3 –161.....7 2..2 912....227..9 1. .....2 –14.

8 762...8 663.7 650....3 482.1 442.5 14..043.3 410..2 11.....7 13....3 1..7 642..824.8 253...7 2..9 1.. 1976 ...2 171...1 1.5 1..6 909..460. II .8 Addendum: Gross housing value added 48.......312...5 633...5 50.3 708.....5 617.7 83........202.1 1...0 109.9 1..1 584.816.9 1...4 5.3 1.7 1.608..2 988.849.6 177.....8 102.7 359...211.....7 Households and institutions Farm 18.9 58.. 1996 .2 763......8 7...299..033.5 243..0 93....3 5.4 183.134.1 20..1 897.....326.4 2..0 60....936....5 1..1 794.2 1.9 3.3 70.6 54..8 76.4 543..871. 1980 . III ..6 1.377.415..8 130.442.3 798.7 601..7 73...171..9 780.219...291.....273...9 1.016.8 10...7 13.4 477..2 20.3 87....3 591...8 1.1 41....2 305..9 71.832.9 14..9 4.3 348.....1 2.....1 10..3 1....1 752.237...6 149.8 968.6 3...2 43......835..828.......837.6 1.2 State and local 37.1 1.7 25..3 812..0 1..9 1.8 1.. 2011 p ..084.731..8 1...9 6....3 1... 1995 .. 1993 .9 602..1 11.028...8 1..562.......7 11..950.5 8....4 40....157..8 1...1 1.5 83.265.3 136...9 79..159.4 83..839.2 1.8 216.3 653....4 10...2 300..809...9 1......1 144.8 1.9 607... 2005 .0 11..4 932..8 67...7 274.879..3 680.8 117.0 156.. 1986 .. 1978 .9 884.0 438. 1988 .....206..5 719.2 5..7 756.623.... 1985 .6 56.0 1...0 614.4 8.3 121.....6 147.5 14.6 10..161..4 4.9 130...2 General government 3 Total 75..8 196....7 71.6 46..0 2.600.......461..5 313.4 2..354.6 113.........2 121.0 4..2 126....3 10.810...9 351...6 486.861..1 1.......0 1...7 806.177.5 1. Gross domestic product 617.7 460.4 8.605.7 624........467.800.2 4..1 804....5 1..893..0 524.762..3 1..6 80.741.078.9 199.0 212.....9 56..9 5...8 10...........7 10.. 1973 ...3 1....6 719...7 767.1 13.9 835..482..9 20.338..0 816.2 1...7 1.....9 1....5 2..7 14.6 96.1 1...376...793...755.9 121.5 160.217....1 717.3 1...9 789.035....5 1..359.6 1.001..2 201.1 51..4 92.9 1.315..5 60.0 292.381.8 7...0 574..0 14.8 137....5 155.5 2.... 1989 ..7 1......1 10.8 562...7 122...3 1...8 65.6 1....5 81.710..8 824..8 911.....843...3 997. IV ...3 106..2 72.8 195....6 7...657..5 9.2 1..6 151..6 2.. II ..327.6 290.. 1998 .3 957..6 4.312...4 485..7 368.9 7.646.7 10.314..5 769...031......042....5 70.....738...3 237.0 59.....0 43...6 Nonprofit institutions serving households 2 15...230.347..7 4.5 264.262..841....5 1..6 1...836.4 14.389.6 1.6 1.6 1.1 93. 1977 .1 15..499........9 79.....879..791...3 947..........204.9 220..4 161.049.8 66.4 65.1 1.0 348......7 1.7 46.951.748....5 22.. III .341.764.198..2 7.0 1.200.341.0 949.1 51.....186.8 23.776...5 9.9 514.3 234..2 1.6 580.3 159.3 145......842...4 8.0 746..4 673....7 11.623..3 1..9 1.6 1.5 555...662..9 10......9 10.5 483.5 113.7 123.....7 5..462...506.9 492.2 10...5 45.....1 6.7 162...1 800..4 810..249.4 1..9 1.....7 14.....820.2 1... 1982 .3 849.6 1...0 1..3 492.9 69..6 87.2 5...8 36. 2002 ....2 71....219.839.5 693..920..4 11.8 77.815.5 4. III .5 1.809.1 538.5 746..3 102...9 1..2 2....2 1...968.2 3.2 10.811. 2001 .6 801...8 274..8 550..1 1.7 574...838.667.050...1 787..... 1975 ...6 1..010..4 121.9 10.....330... 2003 ....6 608.696....077...5 3.534. 2004 ..1 1.8 1.253..8 120.1 788...9 550.. 1999 .1 748.4 1...9 711..211.395....298.6 1.402..3 1.2 49...2 63.715.....4 29....3 778.7 40.391.4 778.....9 14... 2011: I ...4 217........0 109.. 2007 .1 98..4 315..1 523. 2 Equals compensation of employees of nonprofit institutions.9 4.9 11.6 131..3 426..736..4 343...3 59...220.045.230..7 61.788.126.0 1.5 319..9 527.4 1..8 9.7 301.188.7 1.0 2.0 288..4 10.180.028.2 149.....729.8 8..0 517.467..214...6 10...8 2... and rental income of persons for tenant-occupied housing owned by nonprofit institutions....2 10.225.913..8 282.2 50.7 10.283.312.6 237..853.1 4. IV ...2 859...6 1....321.1 40.1 150.0 445......810.3 443..954.5 800...6 1..9 9.....8 44..2 45..5 550.748.6 1...051.666....262.0 260.3 333.0 1....6 102..1 14..558...797..7 25.2 73.........9 904...8 1.9 91..038.8 20.. 1990 .2 868..0 10...030..9 1.836.0 1..316..035..313.9 1..4 924.512.0 665..030.9 1....769....2 111...036....8 1.3 454..7 10....... II ..1 802..1 9..2 147.641..8 10..590..081... 2000 .8 15.........146..637.6 8.4 118.6 506..0 1. Source: Department of Commerce (Bureau of Economic Analysis).4 552.512.2 285.......231.... 1991 ..7 60.3 76...0 14......5 507.286...082.8 Households 39.8 15.5 1..293..4 44.....259..5 56. 2009: I .9 51...5 177..8 1. 1967 ..2 1..2 624. 1971 .0 67...7 1.......3 1..5 10.9 628. Nonfarm value added equals gross domestic business value added excluding gross farm value added..5 415..5 85.8 3.... 2009 ..4 169.. 1987 ....3 11.6 672..1 112...9 153...0 10...642.2 1..6 55.7 832.6 521.033.054.8 Total 54..126.2 135.6 29.2 1..4 1.3 428.6 1.6 640.5 1.8 1.277.039.5 15.7 116.843.3 419.7 1...3 721...0 762..1 122...5 175...7 603..5 156...6 287..578.2 519..5 1...3 1..0 118..139.8 529.235.037....8 1....4 7......7 513.8 14..0 1.........7 765.. 1965 ....2 283.2 363..7 553....414.560.3 224.....038..9 1. 2006 .......5 3....2 398.0 1.....454..332..884...377...5 73.. 1969 ......4 10.. Gross value added by sector..7 277..0 79.1 5.4 909.6 76.9 546..7 1.420.2 623. 2008: I ......041......5 1.940..9 64.7 117.5 842..5 630.059.294.7 1.2 380.321....4 10...221.764.8 338.213....219....7 814.410..7 1..2 589....3 268...0 285.7 107...2 722...5 1.050..833.4 22...1 337.321.7 11..132.0 143...1 5.7 385.299.....087..307...1 205.9 831..012. II ......319......5 88...6 97.....5 3..8 98.....6 713...939.3 12. 1979 ...6 4.325.4 1.7 42...546...699....602..5 7..4 1..3 972..5 1.802..1 3.6 745.6 43.2 3.5 13... quarterly data at seasonally adjusted annual rates] Business 1 Year or quarter 1963 ....8 10....5 61...217.6 282...100......7 110.2 1.8 77.8 6..... 2008 ..840....0 678.9 64.9 257.342. 1992 .9 583.1 2. the rental value of nonresidential fixed assets owned and used by nonprofit institutions serving households....4 59.746...030.4 258.4 1..9 927..5 3..4 10.292. 2010: I ..3 940....3 1.5 196..6 562...8 6..3 3..Table B–10...5 1..317.514.2 14.. 1984 .1 10.0 90.4 11.....176.. 1970 .1 11..827.118....5 938..4 1..9 1.9 2.......8 97...746.0 852.6 1.0 313. IV .809.....330.......087.098..3 194.5 287.6 223..8 601..3 1.. 2010 ...8 382..2 1..4 143.6 1.....9 10...7 671.....838..8 425..926...4 5.5 172.085.....686...012.9 377. 1964 .8 1.. 1966 ...2 62.....5 14..060.8 174.7 133..787.065.......0 864.2 6....851....234.... 1997 ...0 250..0 13.8 1.7 1 Gross domestic business value added equals gross domestic product excluding gross value added of households and institutions and of general government...1 86...8 228...5 8. 3 Equals compensation of general government employees plus general government consumption of fixed capital..869.2 1.4 71.0 Federal 38.. 1983 ..... 1981 .232....0 3..854.4 556..1 293...225.043.350. 330 | Appendix B .4 1...353...4 32.677...604...8 830. IV p ......9 1.867. 1994 ...6 71..7 212...3 383.9 412.992....5 1..0 1.9 6.680.9 570..5 18..8 246.319.3 461.5 231.6 1.0 1.2 49..5 17..8 463..414..6 141....697....5 11......8 107...1 132.5 Nonfarm 1 469...........2 16..046..6 84..5 62...1 318..5 5...8 508.8 519. 1974 .164..3 1.....4 44....120...526...867....7 5..1 359...0 1.6 140.425.2 51.142....188..7 10..685.7 61..1 1...3 1.488..698.0 4.7 802.2 192..210..382.. 1968 .838.....1 324...436....5 1..9 1.......030...... 1963–2011 [Billions of dollars...5 70.2 611.130..6 155.524.6 1.7 859..310.7 135. 1972 .3 Total 488.3 57.1 3..169.8 255.1 3.6 287.5 385.7 7.......6 1.1 10......454.228.8 984..220..951.....5 10......829.9 109... III ...7 789.4 47..7 405..162.....758.6 75.....453...3 93....3 92..5 1.502..9 323.9 11...2 10.1 1..070...805..930.021...0 7..4 10..1 65.6 843...3 19.1 114..8 10.3 6......2 395.423...3 593..9 592....2 1.2 591.

1972 ...5 1.178.985...6 376..9 26.8 943.3 Federal 396...087.6 703.934.2 410...641.2 112...8 29....1 940.9 4..9 9...526..7 2..4 624... Source: Department of Commerce (Bureau of Economic Analysis).9 102.2 863..7 702..2 699.4 Nonprofit institutions serving households 2 Households 226.247.3 1.1 793.....7 493....4 5..430..3 35.... 2011 p .7 592...436. 1966 .5 112.7 24.0 555....9 214..... 1973 ..610..2 112...1 1...7 5.4 1..3 6....6 1.522......2 368...6 9...7 10....937......9 1....3 102..0 914.3 9.8 9..139..3 364..3 351..5 8.3 56........7 34..7 4....0 10.8 997.199....8 3.4 65.663.9 1.7 9..2 693.3 9...5 422..7 251....481. National Income or Expenditure | 331 .150.....013.265..2 415....4 885...3 9.522.6 13....5 435.2 3..3 3.7 1. 1998 ....8 1..2 8.266..153.....5 348.9 9..6 900..7 9...4 1...5 467.3 977.5 969.2 754.373.....5 1.4 950.9 986..4 1.1 1..7 1....8 4.3 1.107..8 34.408...3 123.4 1.7 403.... 1981 ... IV p ....3 1..9 4.619.6 443.008...3 4.1 940...2 498.307...4 99...1 941.077.. 2009: I .....524.1 9..184..457.874.....014.842.6 469.7 81..5 412....1 868..6 2.0 946.4 508......4 1.658..5 666....671...2 435...3 1..287.5 77.6 9. III .615.0 4...635.1 306.9 1....057...2 96.5 8...2 1..3 686.3 774......9 6..417..7 10....5 550..952.. 1999 .9 98..014..3 36. 1992 .4 2.498..0 246.623..6 1.4 452.... 1965 .7 1..4 9..0 56....402.2 1..0 603.215.0 553..9 467..6 1... II ..9 9.6 597..3 29.2 928.326.....8 2.4 12....4 685......0 1.720....5 1.8 8.9 412..5 947...407.6 4....5 7..1 961.9 451.....130.054. 1997 .... 2010: I ..8 1...703.006.8 1..9 1...9 5...3 605...8 390.2 1.603.8 297.. 3..804.1 11...2 3....6 4.6 10.717...7 572.912.0 3...8 486.2 974.065..8 952..808.6 444..9 457.7 1....0 5...4 3.571..1 10......3 52.6 26..753...879. II .....009..271.1 485.4 13...628...491.....033..462.2 590..6 97.....0 555.417.5 400...4 5...8 5.663......6 766. 1977 .5 1..4 8.. 1996 ...1 1.1 697.1 116..9 1...479..4 1.8 Total 384..9 10..8 841.0 12.6 489..8 937....680.0 997.0 652.341.9 1.843.4 1.0 961...8 463.283..172.1 460.. 1976 ......183.3 1.5 234..0 9. 1994 .....0 9..0 262.757.8 31.....129.121...1 13.766...0 929....240..418....253.5 1..030.. 1964 ...001..8 944.1 410...7 10.7 1.681.7 1. 1971 ..813.7 9.4 1...550.9 508..930...0 7.6 5.1 5..060.110..1 10...0 State and local 356. 1979 .. and rental income of persons for tenant-occupied housing owned by nonprofit institutions..2 7.5 25...8 448.123.2 934.3 687....0 657. 1980 .9 10.571..9 10.0 387..2 1.880.4 2.579.2 1..1 420.8 613.6 348....5 476. IV ..286..4 1.1 9...4 1..478.........3 475.8 83.700....7 542..939.4 3...8 574.289.7 224..027....522...4 813..638.035..834..3 601..071..0 589.9 13.3 730...6 1.3 1.189...851.0 430..216..9 888..4 407.8 51......178.8 3..2 469....132.2 678.5 855..2 1..4 General government 3 Total 742.4 895.9 642.349.5 1...6 1.038.0 1..4 1..401..4 4.886.2 1.0 393...9 860.3 947..8 666......6 345.6 27..5 504..310...679....2 660.8 13.2 46.4 11.486..9 1.942.4 1....4 7... 1982 .008. 2009 .079.086...1 2.845.5 462.....7 683....8 988.930.....5 13...4 493.3 1.533.6 305..4 719..205.3 8...3 481.2 503.054.2 531.7 3..516.9 754...3 32..1 426........1 1....6 285..280...121.098.8 1.7 4.4 898.7 405... 1995 ..7 467.....4 641. 1984 ..5 12...652..9 678.9 942...0 1......1 6.6 126.3 6...0 511...1 377..... 2004 .....6 1..014.4 990..035.....4 6.299.2 1... the rental value of nonresidential fixed assets owned and used by nonprofit institutions serving households..459....445.1 1..4 95.9 651...9 1..184..425....5 3..3 3.6 10..8 696. quarterly data at seasonally adjusted annual rates] Business 1 Year or quarter Gross domestic product Total Nonfarm 1 1963 .559.6 676..6 13....8 438.843.337. IV ..204..122.183......... 1985 ...6 490... 1988 ..7 438..5 10..3 1.0 2....119.....106.408.4 695.8 4... 3 Equals compensation of general government employees plus general government consumption of fixed capital.6 412..9 319..9 10..2 662. 1970 ...8 768.9 256..8 1.9 10.5 427..026..8 324.657...630.1 9..5 99..9 608.9 291..4 9.923..1 320..9 365..0 1...505.289..9 3.7 11.....5 1.5 9........7 287..8 4...5 6.169....2 730.7 524.0 642.9 1. 2000 .028...0 13.2 838...1 468.Table B–11..639.1 9.....910.062.045..182...3 1.7 740.....058...2 637...1 274...5 99.192.526.....7 532..049...031...1 789.7 864. 1974 .8 4..7 508.3 1..9 705.2 954.7 991.9 974..633.......7 631..0 114..0 504.9 787.4 13...192.331..132.227..5 27.344.5 938..9 5..3 980.885..8 9.7 8. 2 Equals compensation of employees of nonprofit institutions.6 159.. Real gross value added by sector..450.8 525......4 885.161...643.4 946...258... 1967 .2 8...9 454.323.4 242..6 9.7 1.......009.524.4 1...636..8 585.......9 419..6 938.0 958.6 1....773..8 1...070......9 457..4 661..708.6 1.4 387. 2002 ...1 821.........3 101... Nonfarm value added equals gross domestic business value added excluding gross farm value added.5 3..3 9.....3 8..521.6 204. 1993 .5 939...630.........9 628..0 576...1 778...7 400.2 360...7 506..407..2 510.6 2......1 1..184.0 10.....4 7.4 687..152.400.8 271....7 1...4 1.1 5..189......7 476.1 635.206..020.6 679...646.6 649.2 843.012..7 554....5 1.020..325..5 69.179..539.. 2011: I .......071...6 2...630...0 1.....038...9 66....187..2 10.8 9.5 13.....6 1.9 50..4 676...635...381.1 13.522.518.7 1.1 1.......5 265...9 2....1 661.1 676.......327.5 1..9 6.0 10.5 48...9 626....9 665...1 90..036.033...9 4... 1969 ........6 1.5 405.8 7......2 469..5 10......3 9.2 1.234..6 7...5 28.....0 99..875.9 1.263..7 102. 2006 . 2008 ...6 9..1 821.........239.4 712.4 1...3 9...6 178...1 1.8 Households and institutions Farm 25.511..9 12..2 12...4 794. 1987 ..8 535.0 6.492......5 12...175....0 354..6 1...914.9 465....9 1.883.....9 570.426..633....9 1....0 9.....7 617.4 405...3 338.7 389..0 8....6 3. 1978 ...0 826.0 4.0 507.850..624...907...8 70.0 411..635...9 43..977..5 507.982..8 267.2 1....1 673.805..7 846..9 9..726.836...4 168..7 4.6 947..6 904.5 631...520.1 447.....1 1.. 2003 .1 8..2 Addendum: Gross housing value added 278.9 393.9 335....0 3....186....821.....1 4....055.607.966. III ...2 5...155...5 186.0 3.625...4 72...3 505.2 1..280.0 1.025.7 117...1 452..958.........5 4....1 10.5 1.4 508....0 688.7 1.1 6..0 6...8 4.286.7 152.8 1....8 3.3 1...5 1.2 1.2 57..6 393...535...1 1.2 1. 2007 .9 292.190.2 523.5 1.....8 1.140.0 399..325.2 4.482.0 1.6 678..7 438.8 13......9 12.....1 3. IV .3 1.6 52.0 5.. 2008: I ..8 1...........3 665..0 9.197..632....389..314.770... II .9 10.....5 666..3 5...266....192.9 1..091...4 487..187.6 919.937.1 1.9 1...3 4...9 5...6 705. 1963–2011 [Billions of chained (2005) dollars... 1975 .036..0 388.2 9...623..865..527..8 8..4 789.627.9 1. 1990 .6 1.....1 998..7 511.4 429.. 1968 .027.672.694..493....9 216...863....413.489..5 462.693.1 432.1 480..5 1.279.778...6 776.3 1..5 424.7 789....161.. 1983 .018....009.0 939..5 5...9 616. 2005 .6 454..629...080..188..8 674.9 389.. 1991 .9 4..6 2.... II .8 1.088.042.8 459....3 72..1 423....051..0 743...607.....409...8 2..6 117..5 577.7 13.0 110...3 387.5 7..3 691...8 9.8 5.0 824..5 1..1 483......3 4.5 1....537.363...196.901..5 946.8 2.7 1.2 442.0 1...506.. 1986 .5 28..4 1....465..0 1.266.9 503.376..4 483...5 56.2 799..216.0 1. 2010 ..077.0 485.3 5.2 91.0 115.2 680..9 236.082.4 441.9 475.8 29....189....6 307..297..4 627..3 276.....6 954..375....1 1..5 33.8 1............. 2001 ......7 923...520. III .7 1.....422.238.4 2..175.0 2..032.189.8 5..1 8.1 330..732.1 5.186..5 12.313..964.525.373......175..578..2 4..023...3 12.182.....2 950.3 45...6 1 Gross domestic business value added equals gross domestic product excluding gross value added of households and institutions and of general government..136..5 399..274...5 9...246.516..6 1...034.039....9 5. III .9 801.8 1.028..0 431...4 5..1 501.5 11.7 961.....9 449.5 1.....543..6 6.2 431...904..634.974...605.7 2... 1989 .4 1.188.9 1.5 13.3 1.623.3 8.9 12..

.0 650.0 100.1 4..9 159..343.. 2010 .4 492. 2009 .. except government.8 5...5 1.9 1.7 6. rental.8 86.5 769. 2004 .2 802.7 1..694...1 5..9 330.7 400...2 86...628.7 4.4 5.1 422.3 921..0 19..6 105.2 574... and manufacturing...291..0 100. 1990 ....180..5 102.3 286.268.6 14.4 4.. For details see Survey of Current Business.2 7..6 4.6 2.5 444..4 345.9 2. entertainment...6 243...3 6.5 1.2 385..5 5.9 1.5 528.7 258.8 766..6 57.3 86. 2001 .7 4..5 460.3 1.0 157.9 186. 2006 .1 74.9 165.8 887... 1981 ..3 1..0 1.....709...5 73.6 160.058.0 100.5 20.4 15.. 2007 ..8 614..6 91...9 430..1 12....648.9 76.1 7.800..6 88.706.7 428.3 114...3 206.2 320..5 2.5 603.....4 4. 1992 .1 85.3 99.5 153...8 159.3 7.3 6.0 131.1 122.0 100.1 86.0 6.5 525..1 7.1 617.9 2.5 9...5 118.534.0 1.1 12..277..9 7.0 100.2 12.4 277.2 456.0 7.3 16..4 79...698...126..9 4..0 86..7 12.0 748.6 2.1 758. 2008 .9 339.. accommodation.1 7..9 6.7 177...3 12...939.. 1991 .7 292..0 477.5 319.9 7.5 144.4 115..0 100.1 4.1 7..5 133...9 6..5 524...9 7..9 6.0 653.6 71. educational services.0 458...3 109... 2005 .7 1.414.6 606.1 402...395.2 968.7 6...404. 2. value added..3 490...3 6..2 1..6 73.4 12.119.4 4..3 12.3 335.4 4.4 1.. 2006 .4 7.7 3. and food services...4 6.. 1994 .8 9...793.1 331..701. 1999 ...8 1...7 824.....0 5.0 72..0 100..1 1...5 5.9 562...9 15.642.1 11.4 3.0 3.Table B–12....3 272.5 731.6 1..8 1.4 61..... professional and business services.701.........791.1 75.355..8 5...4 1.7 366.9 119...0 5.085.4 100....2 94...8 121...0 100..5 2.... 2002 . in current dollars and as a percentage of GDP.0 100...1 7..8 6.6 228...4 558...4 6...1 91..812..9 6.7 1.5 238.994.6 98.5 142... fishing.5 2.....3 6..0 83.8 87..8 6.. 1982 .0 100.3 1...7 12...3 7.9 1...2 1.7 2..9 1.3 1..6 6..9 15..9 10.1 Industry value added as a percentage of GDP (percent) 4.1 14..7 7.4 1 Consists of agriculture..1 3...... information....6 2..7 1.2 492...2 3.6 837...0 13...199.0 100..3 1......6 1.4 249.7 5.. health care. 1996 .7 362..7 2.7 85. 1991 .4 467.0 5..4 7.6 314.342.. 2000 .6 Percent 1980 .. Note: Data shown in Tables B–12 and B–13 are consistent with the 2011 flexible annual revision of the industry accounts released in December 2011.7 6.1 12.2 6.853.0 6..7 7.2 6....4 705.3 1..7 5.6 4.7 127.6 558...5 13.016.0 1.0 86.5 10...7 1.7 2. 1995 ..8 2.3 3.....6 7.4 86.3 92....1 78.992.. and social assistance...0 100.6 3.9 660.0 6.....1 1.0 94.5 7.9 557.7 113.2 675...7 613.5 219.208.9 653. and hunting..4 4..0 117.9 781...5 503..3 173...9 6..1 7..3 5..8 309.8 5.4 839.6 468.5 9. 1982 ..0 878.3 264.0 8.9 15.9 976.. 1998 ...4 4.2 5.4 8..2 213.041.9 87.9 177... mining.. 1993 .0 100.8 589..0 1.6 8...5 134.1 724....4 2...0 6.0 100. 1999 ...2 1..0 90.8 6.0 100.5 10....3 614.2 210...9 4..1 1. forestry.6 875..3 6..5 8.3 6.4 247.5 87.3 171....4 8..0 15. 1985 ..0 9..6 94..9 236.2 541.9 6...3 5.6 4.2 9.9 7...5 12.1 87.2 2.7 3.2 6..5 537..8 751.7 383.5 2.1 131.5 87.2 6.6 181..0 ..9 6..5 159..3 5. 1995 .7 90.5 5.0 100. 1987 .1 172.0 82.7 347.5 5...5 2...100. Gross domestic product (GDP) by industry...0 139.2 6......3 285.7 6.840...8 81.8 1.3 16.0 100.1 6.2 4. 1980–2010 [Billions of dollars.....8 233.217.8 107.2 950.667..... 1986 .3 218.2 1.9 554.2 279. 1981 ..9 511.377..0 6.7 1.9 6.9 626.2 387.4 2..3 11..0 6.. finance.9 3.0 100.1 7. 1987 .9 1.037.0 100.1 6.2 14..5 657.....482.1 7...1 9..5 651..623.0 3.5 442...482..0 6..2 250.3 3.1 505.. 1998 .1 3.4 87.....6 1.5 87...8 3.9 4.1 6.0 1.2 376.....077.3 7.1 1...9 ..3 86..7 14.5 1.1 768...9 11..6 95.....5 1.0 6.1 86.332.3 87...2 106.2 1....4 17....3 9...8 2...2 6.. 2003 ..0 192....5 1.0 205...3 229. 1996 .1 6. construction.0 100.2 3.. 1984 ...2 1.2 77.......7 16.5 2.....0 108. 2010 .7 164.8 125.0 76.8 1..2 725. 2002 ..4 10.3 939...1 1.0 462.5 6.271.4 85.0 197.......4 822.142.6 257... 2004 .0 1.8 3.7 78.415. real estate.7 4.4 7..5 4.. arts..9 731..5 1.0 14.6 9. forestry..8 308.6 74... 2 Consists of utilities....133.2 2.. 2007 .4 739..2 10.6 18.2 86.0 . 1988 .5 1...735..5 795.7 1.353.8 5.8 4.8 767..1 5.8 6.0 226.0 100.736.7 4...8 18.0 100..7 816.6 222..0 62.....1 800..5 494.729...9 346...0 11.028.8 95.4 5..... except as noted] Private industries Year Gross domestic product Total private industries Agriculture.8 1....0 100. See next page for continuation of table..4 17.9 6.3 579..393.3 1.9 1..7 410. 2009 .3 545..2 13... 1997 ...8 607..7 5. 1993 .2 175..4 105.6 691....3 73..3 5.2 612.0 100.1 ..5 1....4 2.6 87.0 100..8 5.6 1.8 254.1 9.9 4.2 2.9 4.5 5..1 758. 1989 . and leasing. 1989 .6 2.6 17.6 11.....2 587.5 10. insurance.3 87..3 15.0 280.. 100.9 500.1 684.3 6....7 2....8 787.736...569.788.0 6.2 7. 1985 ... 2001 ..3 12.8 6.540.. and hunting Manufacturing Mining Construction Total manufacturing Durable goods Nondurable goods Utilities Wholesale trade Retail trade Value added 1980 . 1983 .0 100..8 3........6 3.4 1..3 90.0 248.....3 87..345..9 8..1 6.326. December 2011.. 332 | Appendix B ....930..3 6.. 1994 .0 7...460.6 7.2 7.0 1... recreation..0 1.6 6.420..4 140.. 2000 .. fishing.........7 87. 2008 . 1986 .3 9..374.558.0 100...8 5.1 554....0 556..0 208.4 407..3 619. and other services.6 5...7 6.2 9.442.0 100.3 516.6 576.1 7.5 1.3 198.6 380..5 1.5 451.6 8.6 2..4 7.2 243..127...368.6 86. 2003 .0 4..253.2 86..4 6.6 565...5 1.0 7.0 727.1 4.8 17.5 1..6 362.8 1.6 18.010.1 86.5 797..1 9...2 145...5 125.7 1.4 12.4 75.1 900..8 6.4 5..2 1.2 70.6 1...6 17.3 4. 1997 .9 1.9 1..634. 2005 .2 769..9 904.1 138..... 1990 .1 837..4 686.8 78.0 100..1 226.4 914....0 7.4 2..9 4.289....0 11.3 192..4 239...286.437.4 6.7 88...1 7..0 10.9 255..5 1.4 5.0 1.8 390...2 359.9 848..2 1.5 585.7 1.018.8 269.7 4.838. retail trade.4 11..8 86...7 2.. 1988 ..951.. wholesale trade..9 6..8 12.4 777..3 4. 1992 .8 7.1 1...3 86.2 703.1 1...9 638.....2 884.......0 9.4 823.2 11.4 169..7 173.....2 206.3 2..3 7.....5 10.2 4.7 1.....2 108...526..2 294..7 1..0 100... 1983 .5 86..0 1.9 3.6 2..... 1984 ..7 1. transportation and warehousing.9 10.1 11.

...8 2.5 2..8 347..3 105.5 446.7 4.228.4 26.2 461.338..0 25....405...2 1..7 2..6 259...6 2.8 67...8 68.4 2..9 316......076..8 300.2 3.8 184......760...5 18.8 61..6 197......6 12. health care....4 3.4 22....7 12.7 12.8 96..6 20....5 4... 1990 ..6 1.6 2..9 13.316.6 9.8 2.3 1....5 6..948. 1986 .0 331.6 13..9 18. 1994 ..2 4.1 225...3 352. 2003 .0 3.4 64. 1985 .5 2.3 2..0 850. 2006 .. 1991 .2 4..0 61.1 7...7 231..533..4 4.9 927...9 545..006.1 16.968...7 3.759.997.8 2...6 4.9 3.5 4...6 20..0 67..019.3 2.6 161.2 4..6 66.2 1. 1981 .1 7...8 3.5 2.8 18..4 28.9 8.9 6.920.. 1997 ..0 391....958....7 658.0 19..0 19.0 5.0 12.4 11.....9 13.185.8 3.. 1982 ..6 2.8 949.7 402..6 30.3 2....8 9.5 21.523....3 59.9 20.507..7 68.0 152..6 4..5 18. entertainment.8 313.. 1991 .8 19.9 1.7 12....1 21..261.....857. Current-dollar value added is calculated as the sum of distributions by an industry to its labor and capital...316...4 311. 1995 .7 20..2 22.6 7..9 59..585..2 3.5 76..733.2 12..1 953.4 705.9 2.7 4. 2010 .5 3..7 957.. 2002 .........8 134..3 178.9 537..4 376. 2008 .1 1.3 1...3 19.9 166.6 8..... 2001 ...9 9. 1981 .1 61.. except as noted] Private industries—Continued Year Transportation and warehousing Information Finance...1 1...5 524...721.052...443.9 9.6 7..8 458..1 22...0 66..2 523. 1986 .9 2..3 19.0 566.1 133...1 27.7 173....4 384.4 302. 1999 ..827.1 906.8 492.8 11..9 169..3 261.1 3...7 413..5 27..396..6 1..4 205. 2008 .275....6 7.4 280.0 9...5 18..834.3 168.8 1.2 242...8 3..9 14..9 242..9 9.5 7.0 176. 1996 .079.049..........6 287..3 1...4 185.3 152..0 18....8 3..3 5.. 1988 ....2 4...6 3. 1993 .6 14.....198..3 11..4 4.0 1...6 2.3 425.5 Note (cont’d): Value added is the contribution of each private industry and of government to GDP..9 415.8 1.5 394.235...5 2..2 2.. 1985 ..598........8 245.7 687.4 13.. 2007 .076.0 62.1 12.7 3..015.5 2.8 586.8 7...7 2.. 1992 .776.084.8 63. 1993 .2 411.802.7 1.2 223...8 4. 2007 .5 2..3 260...0 729.4 549.7 207.7 6.6 110.6 558.7 4..9 1...9 8.8 13.8 132.353.4 965...0 206...5 338.3 4.3 115.6 2.0 64...3 25..7 1......697.1 18.9 3. 2002 .5 67.7 301..1 4.4 601.7 2..7 12..964..4 1.7 19..007...3 1..566.4 223.610.9 2...7 2..2 4.0 3......2 189.6 302.2 17..610.6 635. 1998 .9 1....1 3.7 17..3 172...9 100...Table B–12.3 756.....0 1.7 2.6 205.6 1.9 2.3 1...1 3.8 13.4 137..1 197..3 192...8 2..0 13.2 1...2 3.678. 1983 ... insurance.3 213.1 3.8 9..8 4.9 21.4 4....4 20.358.7 211..9 64..8 300.8 20.5 678.9 13.0 1.2 1.5 636.9 3.0 78..9 6.....1 4....9 7..3 4.5 12.. 1992 . and social assistance Arts.....5 12..8 19..215..4 3..4 1..9 219.259..4 2.0 537.1 8...2 19.696.4 21...7 8. 1996 ..260. real estate.. 2000 .5 3.0 9.9 4....3 2.3 470.3 1...4 386.2 3.8 1.1 3.5 10..370.643. 2009 .5 4..4 806.9 12.3 6..4 1.891.8 1.0 3..3 255..140.4 3....2 5.0 144.... Source: Department of Commerce (Bureau of Economic Analysis). 1982 .1 438......6 391. 1994 .8 3.1 3....6 67...8 3....8 65.8 451..057.0 56..6 68..5 417...1 427. 2005 ...9 7..321.....8 2..0 57.648....1 147.7 13..971..8 3..192...2 4.916. 1995 ..1 1.9 1.4 5.6 2..0 18.2 6.7 67.9 2.4 1.4 166.9 900.....8 3....3 3.3 321. 1989 .7 10.. 1988 ...1 7...8 13.....9 5..5 1..474.....222.....7 200.8 615.1 20.......9 1.6 2..9 155..2 6.......373...0 4..3 994..5 135...6 19.6 555.7 1.111.......0 404..3 118...8 3..3 14.7 981.9 2.3 8.3 12.8 2.2 2.6 1.7 1..5 3. and leasing Professional and business services Educational services.6 244.8 6.5 12...1 1..8 24..6 600.0 1..5 7...7 241..210...3 20.4 3.4 7.4 2... value added.......7 1.8 544. 1997 ..9 18.1 7.0 17.1 8.2 4.7 8.7 13.116.5 62.2 3.5 3.0 131.5 108. 1987 .. National Income or Expenditure | 333 ....1 8...154.6 11.0 1.6 6.5 1.7 2.8 1.750..721...... 2010 .278..5 1...4 2.099.170...2 277...9 2.....3 1.4 571..3 190.9 20.0 56.7 2.435...1 24.7 8....6 2..1 1.4 2.116...0 199..7 19.7 2. Value added industry data shown in Tables B–12 and B–13 are based on the 2002 North American Industry Classification System (NAICS)..0 19.5 160.751.783..7 506.....8 1.4 381.5 2.. Value added is equal to an industry’s gross output minus its intermediate inputs.0 2.582.8 5.0 92.2 1..517.0 3..7 611. and food services Private goodsOther Government producing services..2 3..4 245.0 68.3 11..4 500...1 106..892..2 4.....1 7.....053..8 182. 2006 .8 383..3 931...1 4.3 517...1 4.1 25..153. 1984 .9 2.......2 11.. which are derived from the components of gross domestic income.2 30.4 319...1 22...4 63.6 343.7 340.8 847...9 3.9 5.... accommodation..5 2....0 1..5 279...1 3. 1980–2010—Continued [Billions of dollars.2 638.4 2...0 3. 2000 .1 927.2 789.8 2.. 2004 ....3 121..1 61..1 1....3 3.3 17.. 1989 ...854..6 8..4 516..0 230.9 1.....0 4......567.4 452. 3..8 342.6 299.586..1 10...0 16.1 1.460.8 356.5 3..562.8 2..4 623.5 5.2 4.9 639.715.0 17...8 275...109... 1983 .667... 1990 ...782.3 3...400.3 9.4 2.9 1....6 1...4 12.5 842...8 6.. 102....6 2...1 301.... in current dollars and as a percentage of GDP...3 66.9 619.5 739.0 6.9 582...0 288.6 677.3 3.2 1..3 86.490....3 20..8 3.4 2..087...4 3.....2 1.....3 2.7 2....0 13.....8 2.2 14..7 13.0 4...0 369..7 1..2 4...8 2.........3 3..6 2.....5 Industry value added as a percentage of GDP (percent) 6.5 842.7 2.6 7....3 19..3 5.9 1.5 337.7 6.0 111..435......1 21.6 2....0 3..7 485..3 277.......5 120..3 3..8 502.153..025.1 3.0 152...1 152.....4 512........ 1999 . 1987 .0 58.863..765.1 12. industries 1 except government Private servicesproducing industries 2 Value added 1980 .. 1984 .9 22..5 13...1 355...3 4..2 1980 ..6 349. 2005 .4 11..8 68..6 264.9 5..7 3...5 2.4 22.422.2 858.3 915.0 13.347..535.0 2.651.3 16..4 4.1 499...6 1.118..8 153.. 2009 . rental..5 424.....597. 1998 .9 476...3 6....2 1..061.1 7.. Gross domestic product (GDP) by industry.3 83.501....1 4..6 7..1 752..1 3.....7 3.. 2004 ...2 13..3 123..4 222..4 804.9 2.010.0 20.5 3.....0 144.272.5 590.3 272... recreation.. 2001 ..9 67.4 235.2 285.... 2003 .0 1.

.655 75..5 ...420 63...1 3...8 5..9 2.746 108..5 –..9 3.539 104..4 7..510 87...1 4..3 9...3 .555 66.078 68...980 104. real estate.428 143....007 104..161 63. 1996 .7 2..8 2. and other services.575 57.537 65.146 68.434 99.. 1984 ...5 –1.6 .......840 80..4 7.785 70...0 5.5 –5.0 5..1 3..857 89....0 ... educational services...000 102.224 92..437 95...9 15.. rental..671 88.374 70.816 91.726 45.069 104.2 10...805 91.7 10..277 103.195 86..8 5...... 1983 .983 70.4 2.....4 –15.....097 148. 1981 .511 119.909 99..2 3.3 –0.1 9. 1989 ..4 2...3 2. Real gross domestic product by industry.266 62..214 56.847 101.750 50.268 88....137 116..9 4..756 93. 1991 ....0 1.881 79..1 10..9 –4.0 –2.467 59....152 70....2 25.603 78.792 91.2 –.298 82.0 6.5 –5..109 51..142 45...778 88.8 –3...5 3.0 –5...004 108.8 5. transportation and warehousing..326 84. 2010 .159 107.2 –..782 73...8 –1......1 –6.591 69.....1 3..004 100.. forestry.470 55.5 4. 1996 ..000 102..9 –.3 7....1 9.7 1.079 90.. and manufacturing.3 4...861 82.7 –6...194 70. and hunting Manufacturing Mining Construction Total manufacturing Durable goods Nondurable goods Utilities Wholesale trade Retail trade Chain-type quantity indexes for value added (2005=100) 1980 .000 100.769 97.3 5......689 96.961 53..1 3.8 4..753 54.3 –3.832 59.995 108.227 45.161 142..2 13.. fishing. and food services.6 1.. 2010 . 2003 .3 7..8 –3.1 3..620 101.0 3.2 2..0 9.0 .6 2.3 7.9 –.7 2..192 41..243 46..3 3.8 20.108 95.675 56.022 83..286 71..4 3........510 100.149 101..8 5. forestry.4 4.445 93..997 75....9 –1.4 3.381 99.5 3.6 –8..3 2.848 137.442 65..6 ..224 34.764 –5..4 8.777 46.5 3...554 28.644 96.987 66.. 1985 ....770 97.....7 7.214 71.597 61...8 11.6 3...466 58.3 7.7 5.961 97.541 84.9 17.464 96.7 7.3 3.7 –2..8 –.0 5...000 102.000 102.6 1.....022 90.000 101.078 54..726 52.7 –....000 104..058 58...2 –5....699 92..962 84.. 2004 ..0 9.. and leasing.9 –13..3 4. except government...683 59.225 63. 1998 .453 100..000 108..8 –1.576 96..544 80.4 –3..5 16..4 11. 1988 .384 51..031 81.101 93.6 –12. 1982 ...276 130.849 77...845 36...052 101. 1989 ...606 85..5 4...4 3.8 5.113 129..416 92.3 10.0 9.1 3...716 97.606 89..087 55.6 1.4 –1.192 72.388 47..8 –7. 1994 .466 70...1 1.5 4.9 –3..982 91.9 –6.535 95.. 1990 ....490 49.837 73.. 2001 .284 103..854 97....6 ..9 –2. accommodation.667 89...3 2..2 4..2 –5.658 100..3 1....347 96.474 133...4 2.4 4..176 102. 1984 .7 11..3 2. professional and business services..343 102..246 85. 1995 .787 133...3 2.1 ..8 –7..830 55...870 47.3 2....3 9.1 2.4 –. 1987 ....4 –12.547 74.6 5.397 102.6 3.887 60.....320 64. 2002 ..950 80....9 7..261 79.8 –7... 1986 .674 59.2 4. 2005 .000 96...1 2.306 43.8 –9.. 1997 .637 46.714 72....6 –1.8 –9..157 93...658 104. 2007 ..5 11..0 1 Consists of agriculture.964 58...2 4....5 –1.5 3......4 4... 1990 ... and social assistance.550 75. 1983 .4 9... 1982 ......8 –3.038 90..6 –7. 1988 ..7 6.092 57.783 64.0 6..0 –4.3 8.571 92.932 92..9 7.980 74..243 61.. arts.2 3.732 82...112 73.2 10.603 114...325 49...5 3.798 66..170 98..945 100....6 6..546 62...0 7...1 8...8 –.326 88.. 1986 ..8 3.8 4.279 112.2 4.4 1.1 –13.5 4.2 –.957 53.217 47..540 39..000 106.. 1987 .0 –1.0 6...626 121.9 6.2 7..187 48.8 .1 5.976 85..4 4.123 80.. recreation..9 –1.4 –1.397 85. entertainment... 1991 ...253 64.9 11.6 11. value added.6 –2...7 12..963 30.785 138.... 2004 .4 –.2 3...7 3..815 100.2 3...264 61.5 3...2 –6...1 –16.1 5.100 50.... 1980–2010 Private industries Year Gross domestic product Total private industries Agriculture.8 –3.4 10.7 5.1 5.059 83.649 87.. 1994 . 1993 .240 38..651 84.9 –4....282 46. insurance.4 –1..882 101.881 56.7 –3..359 58....737 60.134 100.6 2... 1993 .226 49..0 1...7 4.6 4.9 –5.479 93...731 95.2 8...9 2.672 87.0 2....610 46.843 58.093 80..570 52..9 2.4 –28.7 1.000 102..529 61..449 48..060 54.692 44.......7 2.2 6. health care.380 91..6 3.6 .1 4.4 3.1 75.756 67.287 35.545 92..3 9.882 109.046 33.394 93.2 19..871 32.. See next page for continuation of table.7 2.157 78.9 5.655 108.1 1..443 79.911 132.9 –3.536 70..1 11..6 –11........5 6..7 5. 334 | Appendix B .183 44.825 53..022 131.2 –1.....3 1.293 88.2 3.7 3.2 10.438 48..309 93..2 –2..068 74.. 1998 .8 3.. 2000 .....7 8. 46.5 10.953 103..3 –3. information.877 38...1 3.753 51.901 98..742 60......0 5.251 77.....1 5....0 –0..262 70..4 2.595 67.616 80.468 47.427 107.499 79.5 –2. 2008 .8 –11...390 46.684 44... 2003 ...7 3.7 –.. 1999 .6 4.4 4.....1 1.300 93.680 1980 ........661 56..2 2. finance.6 2.613 94. 2008 .4 6.9 4.389 39.8 6.4 9.3 5.5 ..692 108.474 72.656 40..4 6.6 –.. 2006 .3 7..074 60.1 2.619 107.635 103.663 110.000 100..6 –14....448 59..913 45......129 51.0 4..5 3..774 115.584 84..5 3.5 3..0 –2..5 –13.982 95..779 78.682 138.757 104. 2006 ...4 4...2 –2..523 66.. and hunting. construction.847 121.2 8.1 3.4 3...942 92.6 –4..470 48.9 10.5 4.134 52.403 82.912 100....6 7...6 –1.2 –.5 4.1 3...185 84.3 .7 –1.435 111.9 9.9 3.6 –.378 100....420 95.622 104..798 70.536 100.237 100.545 51.672 78.323 39....5 7..3 –1. 2000 .. 2002 ..3 –5.296 68.027 136... 1985 .4 4....7 29.....9 –3..7 12. 1999 ...Table B–13.4 2...1 3.......4 18... 2009 .053 93.1 4.....1 8....098 60....7 1...904 104.4 –4.3 5.607 106...0 .146 76.... 2001 .4 1.901 57..064 38. 1992 ..2 –2.9 –1..120 94..473 34..9 1..414 120.5 7... fishing...199 41.866 96...3 5.810 122..973 53...7 6.148 82.. 1997 . 1992 ..... retail trade.. 1981 .3 3.. and percent changes......8 2.853 92... mining.3 5.2 –12.270 100..5 8.293 35..1 –3.1 Percent change from year earlier –5..9 –3.....9 1.982 100.4 –10...7 3.591 63.328 33.504 42. 2 Consists of utilities.5 3..025 82.834 97.529 60.127 43.961 104..0 1..000 81..3 –10.011 36.236 129.1 1.5 –6. –0.....252 114.448 66.963 57...1 7.538 74..499 86.161 101.2 .473 96....5 3.596 89.225 108.387 44... 1995 .516 34.958 91..307 42...7 –1.1 10....142 59.0 5...726 30.021 100..8 6. 2007 .9 3...3 ..... 2005 .438 31.836 42..2 3..7 4.364 136....9 –.... 2009 ..818 96..545 121.. wholesale trade..

.....2 5.5 4.4 8.9 2.564 101.5 2.......9 6.802 98.572 91.. Table B–12.3 7.688 88......717 75...147 57....5 4...5 6.9 3..229 60.833 110.874 34..866 73......1 1.341 55......340 86..9 –3.7 1..8 5..528 103...019 89..6 5...957 99...463 75..4 .607 60...642 99...231 106.789 51.5 6..563 105..0 5....2 2.313 93..6 .751 100. industries 1 except government Private servicesproducing industries 2 Chain-type quantity indexes for value added (2005=100) 1980 .452 53.821 34..7 2.064 92...685 100..9 2..077 82.8 ..225 82...8 –..8 Note: Data are based on the 2002 North American Industry Classification System (NAICS).7 4.991 89....120 91..088 61.440 100..445 100..184 65.940 102.0 –.7 1..042 53..6 1...776 86.3 1..000 102.0 5.179 75.331 96...8 4.5 8.....0 –5.180 71.837 50.8 4..8 2..657 84.7 –3..3 3..8 2...3 1... 2005 ..834 42.866 75...956 34..0 5.511 64.656 70....000 104.6 2.1 4.....3 5.....4 5..0 2..400 78.2 –5.4 ...5 –.1 2.. 1995 .9 –... 1995 ...236 75.... and leasing Educational services..2 3. Source: Department of Commerce (Bureau of Economic Analysis)..5 2.6 2.6 6.832 72.501 92.769 68.958 82.519 100...0 3.8 –3..000 101...049 31..3 2..3 1...0 3......719 90.282 79.3 1.818 40...460 98.4 1.9 5..163 68......7 2....112 105.5 2.. 2004 ..7 1....277 48..1 –. 2002 ...049 105..104 89.786 89.395 95..074 80.368 91..728 78.9 3.361 48.051 79.201 83......1 2... 2009 .040 99. 1999 .. 2005 ..619 46.... rental..057 45...6 5.704 60.9 5...9 6...1 –..2 –3..1 1.6 2..0 1....3 4.....3 2.566 71. 2000 .938 49.6 –5.7 .4 2.0 10...138 57..0 ...423 63.229 106...987 93.8 12... 2010 ..327 82. 1983 ....... 2002 ...133 93..142 95.511 88.1 13..9 2... and percent changes.000 102.7 4..9 4. 1998 ...2 4.156 107.161 100....200 57.....288 102.166 110.0 .......818 80.6 .528 67..6 2.3 2..941 97..8 3.241 55.611 52.198 33.....688 92.952 73..9 1..4 .6 –3....911 100.940 104.. 1992 .9 3..9 3..3 2.357 105......4 3.380 51....3 7.5 –4. 2006 .... 2003 ..634 97...3 4..318 90. 2007 ...702 66.8 1.7 1.0 5..0 –4. 2003 .8 4.138 79... 1990 ..042 69...679 100.5 –10..6 5.0 1...978 109..0 2.265 104.1 3.4 4..4 .2 4.801 86.3 7.428 37.958 91..2 1... 1982 .5 6. 1996 .2 5.8 8. 2004 ..035 105... 2009 ...5 6.9 2.8 ..293 80..............9 .885 80.6 3.3 –3.971 91..6 3. value added.347 48.5 ...919 62.2 4.2 5.....060 62.0 Percent change from year earlier 3..107 70...4 5..1 –7.6 2.619 46...5 4. 1993 ....209 103. 1988 .034 59... 1994 .140 110.3 4.000 100..1 1....3 2..683 0....525 50......7 –2.8 56. 1998 .6 6.437 101.......0 1....869 45.8 1...691 91.787 61.141 58.... 1988 ...7 2. 2001 ...4 .0 –2.597 67...8 1......388 92....901 50.586 104.880 94.2 1....0 –1. 1980–2010—Continued Private industries—Continued Year Transportation and warehousing Information Finance..587 1980 ..690 35..5 7..847 54.7 4.251 74..271 92..6 .310 111.327 74......008 103.6 7.304 110..1 2..4 ..453 77.......9 –12.399 109.....7 1...848 59.739 96.5 4...6 2.5 3.325 102...6 1.194 97.627 82...8 3. 1986 .917 51...419 76...659 97.5 3...915 114..7 . entertainment.166 71..182 93.9 4..4 2...5 5..6 7........483 59.....0 5.... 1992 .5 3. 1985 .695 30...000 103. real estate.664 61....635 60..6 4....673 101..0 –3. 1990 ..6 –1..6 3...832 43.035 89. 1985 .155 93..8 3..351 92....3 2.559 82...7 5.....0 –..4 .9 2..162 75.Table B–13.0 6....431 64..1 6..... recreation.9 1...000 104...880 58.8 2.........4 1... 2010 . insurance....5 3..923 89.. 2008 .5 .6 3....9 6.989 50. 1997 ....2 2..983 37..1 1....3 1.6 1.. 2001 ..6 1.......4 5.112 57.....6 2.9 .155 59....0 .804 49.092 69..3 3.2 –2.189 47..1 2.....399 94........429 47. 1991 ...614 100.. 1984 .368 94. 1989 .010 103.....671 64.5 5....7 3...742 80.023 83.397 55..235 73.0 6. See Note.3 7.780 89...325 64...288 42.1 ...5 3..5 3..1 3.7 1. 1981 .173 77. 1987 .1 –6....378 32. National Income or Expenditure | 335 ...704 101...5 ...8 3. 1984 ..650 82.2 .8 7. 1996 .4 4.236 47...063 80.8 5..9 .0 1.268 67...2 2.. 1987 ...560 58..487 95.052 79..4 4.5 5..7 4...228 95.304 87. 2000 .356 38.1 –.4 2...8 3..438 64..1 3..6 1..1 2..446 83.000 103..9 2.5 –.749 99..0 3.814 67.0 6.....038 42....686 87..794 78.000 103....2 3.288 96...284 93.5 6..5 3...5 7.. and food services Private goodsOther Government producing services....082 62.938 46.0 –3...332 100.. accommodation..1 9...1 2..455 96.393 50........648 56.0 3.418 65.432 52.667 81..234 93.3 3..881 53..7 1.513 89.673 58..989 67..6 2..430 92....664 62.831 45.6 1.......583 52... and social assistance Professional and business services Arts.5 11. 1986 ..309 66....5 4..8 2.660 106..7 11.7 ..6 3..3 4. 2007 .3 –.147 78.4 5...402 62.922 42..0 1......282 63.9 3..9 2.674 108.8 3.630 76....819 86..4 4...865 87.....973 91.5 –6...822 92....708 58.285 52..3 2.1 . 1981 ...976 76. 1983 ...090 81..3 3..0 5..638 68.9 –1.4 5..297 75..538 54.218 55.. 2008 .. 1999 .9 .841 75.909 66....9 –6.428 100. health care.9 12.471 105.307 100....615 71.878 74....8 5.126 103.4 3...4 .365 48....3 1.....388 66.579 41. 1982 ..9 1.5 1..3 –.0 2..5 3...101 92.7 –3...1 –1.5 2...538 94..816 73..512 89..553 105.006 78.1 3....0 7.125 104.311 34.. 1991 .. Real gross domestic product by industry..6 –3.020 44..5 4.000 101.034 55. 41.420 100.0 5. 1994 .2 –. 1993 .701 66.497 62..951 42.1 1.397 88.216 84...851 69.868 75...696 48.3 –2..5 2.8 6...321 56.......2 3..204 81..649 43.790 38..... 2006 ..238 70..9 3. –2..5 1....0 10....7 .7 4..5 3.530 109.....5 –...8 1..1 –1....2 4.....550 35.7 4.210 85..2 3.7 3.....651 70...9 2.3 . 1997 ..973 93.. 1989 .454 64..504 87.948 86..046 59.010 45....

1 111.0 433.1 5..279... ..0 892.684...8 –64.7 –52..1 166...6 616.5 .. 6. 3..0 –46..946...2 4.5 399.1 607.1 17...0 357.9 6..9 484.2 856.3 39.1 178....5 11... Taxes Comon pensa....479.8 1.4 942.6 173...9 635....5 133.3 87..8 850.804.....6 62..8 6.5 4.7 3.6 –1.5 86.6 115.7 1979 .5 4.7 0.2 1991 ..960.025..945.5 2000 .9 877..4 3.544.5 99.3 1999 .2 209.511.0 538...3 595.9 58...7 713..0 654.4 –7.1 –34..386...5 3...5 2002 ......1 916.....4 873.796.....8 8.4 –54..1 45...4 91.8 14..2 80.307.2 62....4 1989 .0 112..8 –156..0 –43.013.3 961.4 228..167.6 III ...373.2 –14..1 94.. 5...361.....5 108.7 923...589.2 48.412.....2 1.5 –1.6 63...2 181.3 75...6 103...3 –2.1 414..282....8 233. 6.3 238.5 957. 429...9 5. .0 1..5 15...950.1 321.297.....3 2007 .6 107......7 33.2 1982 .4 614.5 2...7 2003 .6 77.1 27...0 362.8 745...7 1977 .1 31..4 896...179..7 255.8 101.5 345.8 69...9 4..6 1983 .5 67.7 4.6 619....1 121.185...7 5..0 258.7 108...0 4...595.1 543....3 329.5 4.....7 158..6 105.8 47.3 II ..499.5 184.9 58.0 –47..2 7..transfer laneous paypayments ments 62. ..2 263..7 146.2 1.2 6.7 302.7 725.6 82.6 4. 6.0 39..0 153..280.5 45...440..0 Total Net interest Business and current miscel...1 344...2 97.651.2 169..2 3....035.2 –3..7 831....4 735. 5....2 76.5 101.1 –1.1 16..4 301.7 2.7 6.2 6.9 56.......677.1 65...5 9.. 6..6 106.7 9..2 56.8 30.4 853...6 8.1 148..0 467....8 551..6 78.5 318..4 153.5 566..8 130..006..0 29.......7 558.7 213.0 71. 3.8 –131.4 74....8 957. 724....7 164.7 1976 ..8 33.1 330..6 212.. 336 | Appendix B .1 2.3 56.7 409.2 517.3 607.2 38..7 151..653.4 1...678.1 144.1 497..3 2.247..6 977..7 87.5 199.5 2005 .8 66.3 4...0 196.1 259..765. 1..4 424.0 976..1 8.0 2..5 63.5 49...3 4.....7 647.2 477..0 6.2 88.7 –128....1 693.2 –5.559.7 33...production tion and of imports employ.1 27. 5.1 –29.216...0 85..8 370..6 1995 .0 249.. 669.252.4 IV .6 2..2 365.1 163.0 37.6 951.8 354.9 644.2 –1. 2.478.3 905.709.3 –12..5 –6..8 185.8 4..9 60.541..7 699.7 129.0 –158...6 275..5 586.9 IV . 6....0 459.. 6. 6.164..3 104...1 1992 .0 124..7 16.2 2.5 651.677. Source: Department of Commerce (Bureau of Economic Analysis)..0 87....152.2 –38..4 4.8 626...1 –16.. 1..4 27.668.441..0 710.. .5 –34.8 34.3 537.7 90..3 913... 7...5 71..1 391..3 435.3 431.6 1..5 67.2 149.811.3 243. 5.534..6 140...0 47.416.2 587.0 100..299...414.5 50..1 5.......3 4.3 276.5 3..5 55...9 2.3 4.0 179...9 –3...5 139.3 88.2 143.1 134.7 156..2 243.4 8.6 31..1 133.263.1 164.9 33.3 106....2 1.3 303.5 1970 ..0 393.4 2001 .4 75....0 –3.5 67.1 132.9 255.9 –..1 852..7 258..less ees subsidies 210..5 98.802.2 54.3 42.5 42.2 640..5 559.. 3.8 869.....5 –32.9 47..3 677.4 1978 ..8 4. . 7.2 147....7 865.814..2 66..8 –116.6 102.302.5 753.1 342.575....6 743.2 –18.5 –19...6 54..5 708.7 633.9 164.6 9..8 33.3 8. 3......1 156.6 71..0 56.4 152.105. 6.3 –33.272.. 4.0 2008 ..5 134.9 197. 1.4 760.5 52..4 680..0 6.2 47.503. 25.9 –69.0 79.9 271.3 797..899.8 506.2 2...5 86..7 687.4 23.2 283..3 29.263.1 5.5 1. later estimates are based on the North American Industry Classification System (NAICS)....5 5.1 2..188.1 6.3 992..2 248...3 590....534..049.009..0 25..162... 1.9 Corporate profits with inventory valuation and capital consumption adjustments Total Taxes on corporate income Profits after tax 2 Profits before tax Inven.. 989..8 121.3 85.559.4 1994 .....1 750.159.7 38.7 69.137.4 701. 750.1 958.1 35.367.4 249....9 –11.4 201.9 26.042..9 857.382....3 243.4 443.031..1 1993 ..9 IV p .157.8 2...Table B–14. 2..4 1..7 1.2 641...6 735.6 70......5 112.3 612..8 613..6 –4. 6....5 619.1 8.5 232.167.4 7.4 254....533.....1 –42..1 22..8 –39.2 4.9 54..... 6.119. 876.0 1.3 942.1 141.1 632. 6.8 479...939..1 376.5 187.4 362...1 466.953.5 471.3 –29.......8 87..3 32..6 89...073....2 304..5 77.5 76.7 197..5 642..8 126.9 36.1 57..5 2009: I .8 465.103..592...7 62.6 –28.117..6 92.1 –30.0 7...7 286..4 1980 .955.1 620...1 416.9 291.0 227.3 –60.2 35.7 III ...4 1..9 2.4 114.2 48..4 49..... 4.1 359...7 615..0 270.3 330..033.6 127..5 856...4 1.8 257...7 46..3 –7.127..4 593...8 86.6 83......8 1969 .1 1965 .1 –22.4 620.8 II .3 4..4 87..1 74.078.4 –34..2 6.3 233.182.........6 204..4 203.2 1..786.1 –72..5 –15....3 4...0 1..834.270. ......8 315..3 853..106..689.4 604.9 502.054. 540...7 2..8 46..4 1 Estimates for nonfinancial corporate business for 2000 and earlier periods are based on the Standard Industrial Classification (SIC).1 74.7 4...8 10. 2.293.2 143...1 47..8 219.4 18....0 347..4 885.9 1.9 57...9 840....9 9.5 171.9 94...2 245..5 III ....0 490....8 2006 ...5 138.119.7 74..039.....1 8.1 54.9 35.2 821..991...8 1975 .3 617.8 5..7 2010: I ....9 27.5 72..6 271..6 27.178.5 4...4 1973 .2 65.2 2....2 1.0 4..4 738.1 613..0 9.1 II ...876.5 121..7 152.9 –20.9 51...8 248...5 ....6 876.2 1..9 .4 232..2 3....3 II . 1.0 7.. 6.3 41.5 1.2 1987 ..9 384.742.7 85..9 525. 809.0 2010 .022.740....9 –90...1 225.....147.5 170. 3..7 226.047.7 3. ...6 182..4 26.........2 91.0 467.0 1988 ..8 199.6 81....5 2..2 864.8 109.0 71......0 1972 .070..1 252.7 77.2 15.....156.0 185....8 1974 ..9 441.1 78..6 486...0 1996 .8 35.6 81.0 5.5 385.4 3.0 800. 1.044.....0 972.049..3 845.7 –4.125.....4 212.902.0 200.101.8 252....2 61..7 1..9 54.2 182..7 –23.2 123..3 45.2 –40.0 2.2 86..6 455. 6.2 77.168......3 2.7 245...5 461.7 7.0 1.0 57..6 3..6 –4.9 38..1 460.4 21..4 80.650.2 183....4 527....4 84..8 239.3 99.3 65.6 216.966.1 840.9 4.0 9..8 890.6 150..4 434.888.2 161.. 6.4 6.929.2 858.7 2...932.4 33.2 98.4 2009 ..5 –6.. 558..5 308.....1 468.. 2 With inventory valuation and capital consumption adjustments.7 4...7 3.8 614.4 272.0 4.045.....1 58.7 192.8 135..104.496.....0 380..877..1 74.5 146.2 197.7 74...6 95..0 –7...5 191.161.. 2.096.7 31..5 140.729..7 2004 .400.5 Addenda Net operating surplus Total 304..620..225...0 41.9 173.0 347.5 581..5 178.3 722.5 –16.1 175.sumption tion adjustadjustment ment 56.7 42..2 192.9 980..205.0 –24.6 874.5 –16.9 4..9 251.5 –155.3 12.2 –44.5 10..2 98.8 –31.8 567.263..Capital tory convalua.0 2..5 285..5 132..6 40.3 731.. 4.4 1985 .....3 1... 1.2 425. quarterly data at seasonally adjusted annual rates] Net value added Year or quarter Gross value Conadded sumpof nonfinancial tion of corpofixed rate capital business 1 1963 .. 329.0 9.3 3.. 2008: I ..6 6..5 4...4 1997 .9 168. .5 66... 1963–2011 [Billions of dollars.2 11.8 244..0 1.2 27...5 2011: I ..005.714.6 381.7 533...269.8 1.5 84...... 1.9 307...5 1.8 67.897......8 70.. 7.5 1981 .8 67.6 –2.9 –12. .1 104. 6.450..163.. 6.768..6 97.1 864. 2.4 1...3 30.5 1.1 ...035..9 606.551.1 1984 ...0 4.2 297.2 552.331.776...8 4.315.2 1990 .4 –2..6 1.3 28... Gross value added of nonfinancial corporate business.5 48.7 70.2 1.8 347.7 –10.3 3...8 75.8 542. 391..5 79.9 357.8 3. 1..0 40.1 586.......1 5.2 755. 4...9 –38...2 236..2 ..8 205.8 3.4 470.....0 65.......7 788.200..0 5....8 49....0 110..7 1..4 850.......8 110.3 264.3 432.9 –36.955..9 41.2 4.2 1968 ..8 974. .0 5.0 287..0 2011 p .5 163..4 1.8 5.3 30..5 1....0 3..164..3 159.670..1 1.649.976.2 939.8 79.5 1998 .0 695.6 110.073...7 1..256..5 166.1 62..6 597.. 6.3 214. 3.4 24..6 441...210..9 2.3 166.......0 219.... ...5 .2 59.4 607...2 904... 5.6 ..178.6 662.7 98..2 –5... 356.5 248.3 639.7 964.4 –45.. 2..6 439.5 4..9 321..4 48.905.6 114..1 397...5 229..3 8.9 353.9 40.9 439.0 835..9 296..1 437....5 510..0 53.......0 1...3 228..0 250.7 80... ..450.3 –5..7 5.0 687.....9 499..8 1.1 408...1 125....0 39.9 1986 ....0 336.426.2 859.631..... 7.244..3 3.. 6.2 848.5 566..3 862.0 476..0 1967 .3 67..964.3 1..4 28.8 IV .2 1966 .5 63.9 539.8 1.549.1 6..9 1...2 258.7 747.091.............. 497.1 4.5 17.241.....398.181..412.5 884..445.6 6...1 3.9 293..9 4.9 76.383..456.4 –4....7 94.3 3.9 60.9 1964 ..0 427.5 .7 385..094.4 278...0 4...6 88.5 86..6 III .9 445.1 1.2 165.9 584..5 984..5 132...5 669.2 575.0 239. 451.. 603.3 1971 . 6....5 29..5 68.7 27..7 68.

.. 1987 .338.306 ....903 ..363 .086 1....050 .006..035 ....3 603..534..091 .036....241..781....8 6.135 ..050 ...270 .329.009....034 .442 ...028 .7 5..026 ..037 .....592.020 ..025 ...028 .....1 3......167..1 1.5 3..013 ..058 .139 ..8 876.4 3....2 1...030 .5 7... III .127 .141 .082 .919 ...265 ..025 .... 2011: I ...381...9 1.084 ......085...533....302.040 .025 .3 6..085 .088 1. 1974 ...668.9 6.272 .........038 .......088 .681 . 1965 .. 1979 ...0 4...078 .566 ....075 ..018 ..129 ..028 .009 ..8 2..888..576 .035 .018 ...096 ...0 6...1 3..3 4..041 ..4 750.090 1..214 .588..078..066 ..207 ..073 1.035 ......... Gross value added and price...361.264 ..1 3..414..811.866....092 1.012 .018 ...020 ..091 .049 ..084 ...285 .329.792 .....104.474 ...149 .112 0..653....666 ..052 ...095 .... 2006 ...077 .966..145 ..143 ..039 ..7 7..504.017 .......024 .031 .043 ...5 5. II ..680 ..026 ..466 ...660 ...083 ...3 7.2 429...155.293 .061 1.119.. 1998 ...065 1.040 .5 5.020 ...078 .. 1984 .675.081 .....637........631 .0 451...057 ..4 2..086 .452 .053 . 1973 ....6 4...641 .054 ....115 .009 .031 .089 1.035.288...272.024 ..120 Compensation of employees (unit labor cost) 0.......022 .590 .111 ...... 1967 ......481.101 ......765.........029 ..080 .026 .....8 5......1 2.010 .....076 .020 .0 6...... II .023 .946 ....9 3.551....024 .243 ...052 ...112 .086 ..955..... IV ..076 .515..048 ...4 6.....207 ....017 .269.9 6.676 ...203 ..103 .165 .030 .6 3....534..263 .......023 .061 .599.094 ..909 ......132 ..840 ..877.0 2...029 .004 ..024 .........073 . 2009 .817 ....929..5 5.112 .005 .. 5 With inventory valuation and capital consumption adjustments.698 .044 ..... 1999 ..560..061 .119.143 .4 2.019 ..521 .491.....034 .1 391.3 6.......046 ...870 ..277..067 ..025 .......045 ...049 .030 .....536 .2 2.097 .016 Total 0.......462 .237.4 2.... 1980 .3 6..894 .214 .681 .077 ..026 ..103 ....692 . 2001 .. 1978 .......039 .......028 .056 .....4 6.....039 .3 4.112 ..045 ..407.282 .074 .7 1....096 ....631 .270 .032 .090 .136 ...0 2. 1976 .991.....024 .. 1997 .029 ...6 6.....649.028 .401 ...077 1...8 1...5 558.946. 1977 .106 ...085 .966..083 1.056 ...214 .... 1990 ...685 ....658.154 .221 ..136 ... 1968 .....112 .039 ..278 ....120 .....017 .016 ......9 1...029 .......026 .........0 2..138........094.....290 ........073 ...272 .....6 1..691 ......8 3.044 .....118 ...053 .4 1.014 .. Source: Department of Commerce (Bureau of Economic Analysis)....161.....287 .038 .127 ...585.. 2000 .207 ...........026 ..073 ..8 6.5 6......154 .118 ....111 .024 ..130 ....164 ...7 5...932 .412..145 .8 6...012 .043 ..085 .......818..557..043 .028 ..050 ..745..... 2008: I .276 ..737 .402.487 ..1 6.110 1.046 .852 ..265 .. 1981 .....876.038 ..208 ....898 ..640...114 .806..024 ..034 .7 5.266 ConinterTaxes on Net sumption production est and of misceland fixed laneous imports 3 payments capital 0.681 .022 ...030 .049 .5 4.059 .....031 ...695..006 .033 .4 4. 2010 .094 ..030 1...071 ......... III . 1963–2011 [Quarterly data at seasonally adjusted annual rates] Price per unit of real gross value added of nonfinancial corporate business (dollars) 1..588....075 ...088 ..597 ...2 2.089 .......044 .717...740.714 .330 ....122 .043 .7 1..424 ......3 5.2 3.046 .543.130 1 Estimates for nonfinancial corporate business for 2000 and earlier periods are based on the Standard Industrial Classification (SIC)...028 .... 1985 .209 ..497 .671 .......573 ....029 .093 1.624 ...7 6.102 ....028 .079 .4 6.022 ...091 .090 ..9 1.. 1975 ..133 .7 6.080 .030 .. 2010: I ..266 ....037 .067 ...540 .077 ..020 .792...066 ....043 ..075 ....032 . 1969 .....032 ..108 ...018 ..155 ..185 ..5 1....077 ...... 1966 ...098 .047 .....038 .......... 1996 .398..887..135 ..682 . and profits of nonfinancial corporate business..016 .083 .194 .4 1.....095 .210 . 1993 .102 ......018 ....120 .081 .679 ....180 ...132..0 6.302....106 .101 .034 ..025 ....736..026 ...700 .902........029 ..038 .616 ..057 ...170 .108 ...1 6..034 .386 .068.079 ....039 Profits after tax 5 0. 3 Less subsidies plus business current transfer payments.024 ..950..030 ..9 356..5 6..... 1986 ..117 ...2 2. IV .055 ..025 ..115 ...1 3.493 ..7 989..050 ..116 . 1970 .885 ....079 .686 Corporate profits with inventory valuation and capital consumption adjustments 4 Unit nonlabor cost Total 0......061 .031 ..323 ..064 ...5 3.......111 ......024 ...061 .076 ...099..7 3.....622 .277 .2 5.300 . 2005 .105 .4 2.025 ..4 3...169 ..028 .110 ..026 ....966 1..051 1.135 ..768 ..094 .019 ...039 .105 ....017 .235....037 ..333 .5 7.8 809..553 ..5 6.235 .291 .114 .020 .027 ..171 .639 .044 .383.020 ..000 1..009 ..267 .102 1....2 497. II ..103 .075 ....1 6.....081 .8 6..089 ..034 .628 .....9 2....075 ....726 .026 .061 .293.......044 .122 ..017 ... 1988 ..028 .1 6. 1983 ..073 .750 ......264 ..1 3.023 .. 1982 ......057 .......102 ......235 ..028 .099 1......0 669. 329...071 .....027 ..033 ...4 5. 2007 ..........088 ..092 ..178 ..050 ..037 ....041 ....713..049 ....804.7 1.0 2..402.3 2...172 .021 .... IV .. 1995 .109 .273 .0 4.004 .047 .1 6..299 ....7 2..116 .126 ..4 6.307.234 .. 2 The implicit price deflator for gross value added of nonfinancial corporate business divided by 100....030 ...016 .033 .6 Total 0..8 540.035 .692 .026 .135 ..3 6.150 ...069 ..103 .....037 .....049 .260 .157..577 ..677.031 ..9 3. 4 Unit profits from current production.073 ...675 .098 . 2003 ..105 1. National Income or Expenditure | 337 ..650..102 .352 .... 1991 .110 ..9 6..742.2 2.069 ........2 6.368.047 .042 .038 .110 ..004 ...064 ......249 ...138 0.034 ..454 ..088 ..903 .955.038 .018 ...426 ..135 .....049 ....112 ....048 .Table B–15... 2004 ...027......027 ...112 .......072 .575 ..035 .......026 ..6 6. III ....674 ..041 ..026 .0 4.905..5 6..112 .613.9 6... 2008 ...1 6.9 Chained (2005) dollars 1..8 5..030 .....035 ....110 .264 ......173 .024 ...028 ...057 .... 2002 ....4 5..935 ..131 ..085 .106 .4 6.071 .....301 ....573 .8 6.. 1989 .035.........452.9 2.110 ... 1994 ....311 .587 .083 ..013 . 2009: I .208 .037 .899.042 ......061 ...065 .....116 .........022 .021 ...023 ..7 6... III ..087 .015 ...... II ..222 ..252.025 ..235 .137 ..... 1971 .137 .. costs..007 ...098 ....016 .026 ..... 1972 ..127 ....606..095 1....027 ....166 .088 ...083 ....... 1964 .. 2 Gross value added of nonfinancial corporate business (billions of dollars) 1 Year or quarter Current dollars 1963 .264 ...1 1.953.168 Taxes on corporate income 0.258 ..017 ..208 .019 .. 1992 .538.104 .036 .....198 .030 ..038 .072 ....802...503...021 .111 ...2 3...4 1.183 ..630.......679 .145 .153 ..089 ...182 .....046 .349.... later estimates are based on the North American Industry Classification System (NAICS).058 .....501 ......083 1..109 .964......004 ......085 ....099 .216..232 ..037 .694 ........279..080 ......068 ...5 6....028 ..022 .092 ..165 ...

3 701.7 2.6 2.0 6..0 126.5 719.526.0 28.136...892.3 27.6 1.8 188.7 7..5 1.0 562..642. III .5 10.3 8.485..7 3..4 311.6 431.6 5.361.3 6.2 9..651..272.661....5 443.6 898..072.6 817.7 465.8 1.0 303....3 6. 1983 .9 8.. 1999 .0 290...9 6.6 367....432...5 1.0 2.6 2.2 1.5 6..7 133.6 696.076.0 9.632.6 2.532.. 382.890.8 9.7 163. 1964 ..6 42.6 770..3 248.2 3..9 470.6 6.4 6.0 3.808.173..038...7 3.4 1.457.1 494.570.1 20.8 1..4 735.3 5.3 368.. IV .966.7 1..3 546..358.7 204.155.659...3 2.9 1..5 655....264..3 226.0 1.0 116.1 746.701.0 1.4 347.6 3.0 1....5 491.7 143..2 Addendum: Personal consumption expendiFinancial tures services excludand ing insurfood ance and energy 2 15.8 1...781...5 6.6 5....6 291.858.2 1.020. quarterly data at seasonally adjusted annual rates] Goods Durable Personal consumption expenditures Year or quarter 1963 ... 2002 .188.2 110.6 918..4 2.9 4.. 1979 .385..012....6 1...0 4.1 1...883.....4 778.5 337..8 869...5 107.2 3..562. 2011: I ..5 1.. 1963–2011 [Billions of dollars.4 421..8 183.596.0 857..241..9 156.355..055.373... 1987 ...5 339...6 537.6 1.9 677.771.5 1.8 486..7 318.3 9.0 2.459.4 6.9 54.161..396.4 275.834.7 363.2 792.169....7 273.4 286....2 956.688.8 67.0 311.8 1..5 1..917..4 1..245.1 1.9 223.0 1.4 663.5 108..1 9.0 131...0 6.0 7.5 3..0 1....228.750.4 34..1 811.2 26. 1965 .0 24. 1970 .3 1...4 1.8 399...844.0 6.8 2.3 316..5 9..154.6 2.913..6 87..700.0 2.1 303..163.9 1. 1971 .6 739.4 318.427.7 1. 2001 ..197... 2010: I .7 1.377..151.437..3 43..746.840..Table B–16.6 167..1 2.004.7 698.861.8 1.743.. 1996 ...6 199.8 2.836. III ..8 1.2 6. 2003 ..624. 1989 .7 53.422.4 766..268.7 1.9 4..7 3.5 293..6 261..9 69.554..2 1.9 23.9 832..6 35..0 2..7 19.0 349..2 1.987.9 3.389..4 48..423..0 932. 1966 ....3 67.824.825.4 93.8 29.9 670..0 363..668.729..8 10.6 174.676.2 8.617.6 1...1 76.7 408.604.175.381.. II .9 474.6 5...549...231.3 1..4 1.4 349.....1 432.8 239.679.019.829.5 80.858.8 4..064.543.7 257....708.563..803.610.386.240.781..633. 1978 .9 752.828.2 212..4 1...1 477..2 79.1 3.4 6.205...6 176.5 Housing and utilities 68.4 625.9 29..7 1.5 10..4 1.3 807.0 313...053.2 1.4 1.2 84.....2 555..6 573. 1995 ...338.3 1.5 359..7 1.4 99...6 2..5 749.221...8 205. 1988 ..5 607.4 584..099.456.1 1.. Source: Department of Commerce (Bureau of Economic Analysis).320..5 91.0 101.4 9..4 368.638....911.290..893.2 814..6 5.587.7 2....5 2.033..1 5.550..158.7 6.2 458.. IV ...901.8 961.2 1..5 4.726.176.9 722.6 1.065.8 1..0 403..224.....3 1.8 2....2 366.009..1 391.1 38..491.0 10.772.6 209..581.386..1 373.9 408.273.0 421..5 45.5 2..8 6...4 3.2 25.141..148..1 790..0 2..582...932..6 Food and beverages Gasoline purand chased other for offenergy premises goods consumption 65.076.802. 2009 .019.846.179..979..2 746. IV .708.5 1.8 416.2 1...6 6.3 8.020..8 171.8 5... are not classified as food.143.0 345.0 199.0 747.2 1..556....6 1..0 605...9 4...0 284..6 1.8 48.0 84..277.6 514.0 404.1 231.6 1..4 442.649.0 1.871.8 244.6 4.5 188.....0 26.9 339.497.2 1.934...... 1981 ..1 1.8 558.8 89.5 90.3 1.....4 450..1 3... 1984 .366.529..5 196...880.507..5 1. 1975 .5 54.6 1..1 427.7 1...8 2..990.5 513.1 3...534.4 746.645.3 550..125.3 378.4 6.2 2.6 1..673.184..896.4 124...7 3.804.5 126..765.9 110.9 1..5 Total Total 1 184.....7 795..106.6 66.5 130. 1982 .6 8.. 2005 ....3 9..6 180..596.137.3 2.0 2.8 196.8 335.8 576...2 4.2 8..2 394.7 676.006.720.167.2 1.5 2.334..7 31.8 821....5 757.0 819.5 194. 1985 .4 37...7 393.2 814..337...039..256.314...240.3 6.677.4 7..0 3.3 3.7 8...1 47....8 2...1 1.....6 102....9 6.6 192.7 201.3 973..299..3 6....4 106.3 177..0 387.2 8.0 3.2 7..9 129.363..717.069..3 401.2 506.6 753.4 243.417.7 1.. 2009: I .135.9 799..0 8.5 8.398.299.082..686.0 1.215.513.4 116.401.5 423.8 95.4 899.3 1.5 16..190.2 1.6 1.3 444.. food services. 1993 .8 7.2 804.4 1.0 Health care 21.9 1..8 746.. Personal consumption expenditures..2 380.3 3.4 34.5 302..4 354....8 342.665.746.. 1986 ..085..6 95..371. 2 Food consists of food and beverages purchased for off-premises consumption...4 915.2 782.087..592.4 2.2 72.7 6.756.681.6 10.2 8. 1976 ..408.8 255.3 1.2 1.866.1 5....3 229..815.4 752.1 1....8 1...1 Total Total 1 198... 1972 .6 825.9 1.9 1..6 178.9 3.9 2...291.7 249. IV p .591...482.4 21. 1990 .921.2 49.5 321.1 10.483....3 267.7 9..2 757.. III ...3 2...610.655.7 397..090......428.1 34..110..3 992.0 59. 1992 ...722..3 1..667.9 253.4 1.2 52...734...539.3 7.7 6.7 131.3 469..0 8.933.276..9 374.3 1.1 2..6 1..1 6.2 4..5 651.0 342.9 655....8 4.5 434...035.866.2 383...462..3 2.8 680.1 853..9 1.......4 101.7 8.901.7 249..050.7 1.653.1 89..819.058. 1974 .......5 3.614.939.2 431.2 207..2 253..728. 1977 .4 764.864.4 120.0 102.728....2 86.615. II .571.8 90.090..5 10.2 170.4 1..2 570.2 1..5 9...0 2...5 240.679.076.6 1.5 10.134.6 81..2 350.0 6.1 1. 1991 ..3 401.2 770.. II .2 2..6 68.8 365.3 9.....7 461..5 866.4 800.8 721......3 41..782..6 737.578.5 788.7 253.513.0 1....4 418.170.6 88.148.9 Total 1 143..8 28.4 646..195...2 214.5 432....2 25.1 1.388...3 342..831.0 156....1 1.8 341..784..8 1..6 304..4 235.7 569.8 3.3 678.9 3..3 1..483.5 5.813..6 2.4 324.1 3..6 1..901.3 600.2 148..1 3. 1968 ...3 4.9 807...763.255..7 807.4 2.7 74.6 6.645.6 4...0 109.245.6 29..5 158..2 320.542.835.4 329...301.867...9 6.5 1..4 996.821.6 779.8 1..8 339..563.6 587.2 168.....0 2.4 300.5 5. 2010 ...291.349..9 3.552.063..3 179.288.9 507.6 3.. 1967 ..0 410.162.245.9 17.6 29.7 411..1 551...5 2.6 3..378.4 542.4 391..8 9.387.704.9 152.9 2.330..2 3.7 803..8 1..308....4 1.1 320..3 3.5 759.1 383.2 6. 2008 ..7 1.2 4.2 377.9 17.7 10..2 142...5 994...2 852.8 1.5 43.....9 354. 2011 p .4 4..5 674...350...2 2.2 282...755.4 6.946...8 6..127.1 6.0 863.8 420.8 115...8 2.0 122..571......3 929.5 3.0 466...707.2 96.3 145.8 480.198..5 31..0 6.9 147.2 255.4 435...830.5 1.9 1..8 648..7 101.....5 7.3 1.0 316..259..0 1.6 790.1 187.3 1...1 2. 2004 .4 809..5 323...6 10...5 303.601.271..677..215.0 295.0 1.1 1...018..0 100..3 500.907.3 273...4 1.. 2008: I ..1 2..8 25.438.344..953.124.1 4.6 1 Includes other items not shown separately.280..236......4 108.437.351.838..7 6.1 451..2 9.466.. 2007 ..918.7 21.515.270....123.2 364.4 3...861.3 22.8 612.8 224.4 103.9 1.8 1.2 143.2 3.483...4 80.1 114..5 780.2 133...8 352.7 1.8 6..7 3..077.075.0 475.1 330..4 54...700..4 924.9 751.478....143.033.....3 715.. which include purchased meals and beverages.7 3.0 2.5 340.270.1 607.1 1.....8 6..9 8..358...7 2.5 3..622..0 732.1 218.7 741..6 339...0 213.9 6.0 766..7 10..0 53.9 113..627..5 2.6 82..0 644.9 3.4 148.287..501.070.7 217.8 410..1 1.2 774..2 511......0 6.2 1..9 36.937..4 732...5 604.4 264...451..8 503.5 1..4 7.1 6...872..2 202.2 1.0 1.3 497.2 121.7 535..3 6...9 1.389.8 4.1 2.009.6 451... III .0 364.146...1 276.1 332.4 481.3 6.9 1.2 7..1 648.656.108.019.858. 2006 . 1980 .123.4 239.2 76...9 1..5 206.002.2 1.2 508.4 71.7 6.7 2.9 6....587.2 382.6 192..791..605.029.8 214.3 226.1 1.8 1.126.2 228.9 1..153..900.0 806..6 9..6 3.130.139. 1973 .0 57.3 862.1 185.3 92.9 185.7 207.0 10.2 1..7 6.072.097...1 219..5 3.5 613..580..8 946...2 3.3 1.369.1 125.665.594.7 8.....5 249....171.5 74.....7 2.2 403.5 559.6 1.5 396.5 .....1 443.2 711..016..9 Services Household consumption expenditures Nondurable Motor vehicles and parts 24...4 130.2 5.....103.....325..110...1 321...9 8.1 1...263..7 571..1 1.7 19...1 2.2 602. 1997 .4 1.3 741.1 1..4 2.1 10.8 273.5 771.6 259.4 1.071..9 312..7 783.980...4 144.154.052..632..3 10..4 6.574.9 225.1 5.8 744.484..901..340.5 913..8 1.5 2.. 338 | Appendix B 290.5 339.7 147...1 420...2 90.5 299...2 3.....1 3.195.1 277.7 3.659.3 2.1 378..301.8 61. 1994 .4 303.5 413..1 3.8 1.503. II . 2000 .3 6.868.841.0 1.. 1998 .8 780.....7 815...7 59.887.0 524.1 8..3 8.181..342.2 330..439. 1969 .2 635..393.8 80...3 359...6 761.8 614.0 291.3 743...3 1.8 1.2 59....

III .2 5.1 6..005.6 5.3 282...9 360..173.5 1..5 1..3 1.480..1 6.1 9..6 1.356.7 8.2 6.3 7.277.2 3.017.2 294....067..8 6. 1995–2011 [Billions of chained (2005) dollars...6 1.7 3..4 328.4 8.019.5 267.077.0 3.4 6.4 1....5 698..0 8..351.2 666.043.2 279.5 608.2 1.6 1.4 3.7 5..006..1 5.9 1..1 356..5 666.3 6.6 7.5 273.5 1..9 1.6 667.4 1.054.087.145.9 5.424.238.067.3 4.4 5.5 587.9 4.3 732..9 644.1 1..461....2 675.1 289..0 301.5 2.637.8 677..5 9.1 282.3 3.4 2.1 1.....4 280.3 269..9 1.8 1.690.8 1. III ...4 9..401.9 684..418..7 4...120.5 4.476.. Real personal consumption expenditures..511.3 1.953..5 5..8 5..9 616..672.3 2.1 683.4 1..202.0 1.702.4 5.3 1.8 5..2 1.6 5.7 1.9 1.267.2 997.1 1.318.0 284..3 1.9 5..3 665.4 287.3 1.6 5.540.7 340. quarterly data at seasonally adjusted annual rates] Goods Durable Year or quarter 1995 .6 268. 2011 p .6 7.6 1...980..998.215..9 1..081.244.707.1 1.2 5.4 1..515.258... III .039.8 1....630.7 6.7 1.196.3 8.3 1.7 1.2 8.6 593.1 1.765.090.8 660...260..8 1.3 268.5 663.0 2.3 6.4 927..1 5.... 1996 .938.050. National Income or Expenditure | 339 .0 1.8 410..252. 1999 .1 667..714..7 1.041.462.. IV .098.714.364.234..2 2...409.665.220..8 316..765..240.4 2.4 280.9 9.663.. Personal consumption expenditures 6.051..8 5.040..7 1.667.2 5..7 5..120.8 9.3 658.7 7.2 666.008..8 1..289.018.1 343.0 2..3 9..285..6 1.9 6.4 5.6 3..2 394.7 3.5 8.810.650..5 6.1 5.1 6.6 752....075.3 1.637.3 5....094.464..319..981..2 9...918.0 404.8 666.0 670.8 3.7 5.928.640.4 346.9 508..653.965.7 1.882.8 303. 2007 .1 1. Source: Department of Commerce (Bureau of Economic Analysis).680.668.9 283.4 5.4 7.0 657.5 5.060.6 1.0 862.1 5.3 1.803.3 2.9 8.015.0 5.286..2 1..656.....0 2..7 1.798.170...972.7 1. 1997 ..076.4 Total 1 Housing and utilities Health care 4..1 281..327.249..4 2.8 1.518....045..076.5 607... II .1 5.8 1.....3 2.8 7....9 5...3 1..2 672.194..5 9.3 Total Total 1 1..021....0 9.9 1.745..9 1... which include purchased meals and beverages.284.2 647.218.862. Note: See Table B–2 for data for total personal consumption expenditures for 1963–94.4 1.183.148.0 3.186..174.3 676.5 548.2 712....124.8 665.545.331.988.060. 2001 .9 2..178.6 4.520...045.997.9 9.5 6..171.4 1.. 2008: I .121.076.0 1.9 9..423.1 679..1 Total 1 1.331. 2009: I .6 674.199..2 510.3 7..8 296.2 Total 4.083.9 2..0 4.123.237.8 1.0 667.522.288.7 1.4 8. 2006 .209..892.2 525.8 1.421.5 330.110.396.5 9.247.228.0 3.1 606.5 5..143...088.032..9 321..1 1.1 2.7 3....1 356.6 5. 2009 . II .395.9 8.474..147. III ..734..082.0 5...333.442.8 2...169.2 1.5 6.123..8 678.3 3....4 1.376.1 5.4 1.8 671.983.2 1.096..7 2.8 322...4 1..290.827.626...896.2 7.670...1 684...328..273.984.219.8 4.9 294.9 8..6 3. IV .401...926.0 1...754..199. 2008 ..4 286.2 Food and beverages Gasoline purand chased other for offenergy premises goods consumption 548...075..8 1..421.9 558.446....990.932...7 9.292.5 381...3 673.306.039.9 3.392...935.7 292.1 683.742.793...8 682.. are not classified as food.7 3.654.5 267..9 1.730.9 659.6 5.9 5. 2010: I ..262.5 650.465..4 344..2 6.616.208.9 281..6 661...082..8 282. II .5 693...... IV p .9 1.3 738.2 2.242..675.953.2 9.8 1..3 279.4 408..6 967..135.202.816.3 394....7 8...2 1.8 8.8 2..665.029..5 8.5 1.6 5.472.1 316.2 5.385.9 682.8 680.5 5.9 989.4 716.660.985.4 2.5 3. 2 Food consists of food and beverages purchased for off-premises consumption.660.512.6 5..840.3 5.6 281.2 8.261.308.1 1.073. 1998 .187.0 673. 2003 ..651.7 1.4 Addendum: Personal consumption expendiFinancial tures services excludand ing insurfood ance and energy 2 489.109.3 1. 2005 ..402.9 368.0 345.432.982..096...7 278..7 7...4 553...980..0 9.5 9.9 303..134.7 2....093.6 1....0 746.9 3.5 2.0 1..3 3..392.329.9 674..1 9...4 401.188....7 Services Household consumption expenditures Nondurable Motor vehicles and parts 255.2 1..562...5 1. 2000 .637.. IV ....3 1. 2002 ..6 1.7 676.745. 2004 .371..947..0 1 Includes other items not shown separately.7 1.1 5..661.6 4.2 7..232..2 947.7 9.438...853.4 6.0 654..7 1..7 5.646.1 6...6 1..7 3.6 7..816.8 5.108.0 286.322.Table B–17.3 8..5 1.4 739.745..027.6 1.775..669.0 3.030..0 8.8 8.064.702.4 1...9 305.1 9...0 354.....6 2.9 2.4 1.9 3.5 316.6 5.1 2...5 372.2 7.437.076...657.7 670.471.0 661.068.2 5.082.6 1..3 1.029.5 5..389.2 1.5 9.953...927.192....5 623. II .3 8...780.344.662.991.9 7.2 342..3 600..676.1 1..479. 2011: I .037..669..580.4 274.9 1..604.7 315.4 8.9 3...911..0 1.1 281..042.2 268.277.9 3.875.0 5.917...8 732.345.655.342.1 1..9 667.099.433.451.5 1.211..6 672.515.032.8 1.726..582.597..178.. food services.481.860.929.1 264.8 565.5 5..075...2 1.7 273.0 818.429..0 1...1 374.2 312. 2010 .076.3 1....413.0 6.7 1.1 4.5 1..7 9...1 5.230..5 6..929..666.1 7.7 559.

8 386....8 85...... 340 | Appendix B Structures Computers and peripheral equipment 0.7 63....0 342.7 1.........4 15..377....8 40..5 110..7 1.. Private fixed investment by type.0 194..6 195..6 188.6 731.4 20.7 84.5 1....0 145..8 650..1 214...2 104.6 154.5 577.159..1 166.6 369....7 280..5 130.0 112..6 177....2 1....4 2.2 16.6 16.505.2 265.0 559. III ........9 41..7 44.713...9 262..8 803..2 12..0 163..3 159.7 524...4 968..5 173.4 169...9 105..2 226.5 256.6 1..3 74....0 22..9 567....3 1...4 93....4 147.0 414..3 569..........5 170..8 221.4 107...6 178.. 1976 .9 485.Table B–18.2 153.0 1.6 1.0 257..9 6..6 33..0 34....905...5 201.9 957.8 281...7 2.9 183.4 47.....7 472....4 58.1 177.2 13.2 54....8 35...5 31..4 29.1 233..8 25..2 20....... 1984 ...2 153..2 250.5 419.0 140.9 23..0 191..3 366.9 16.....5 139..3 19..7 327.1 1.....9 3..0 229.6 183.5 330...0 190...2 515.....3 344.2 162..3 550....700.5 176.4 .1 125... 2010: I ....8 53.6 12...015.8 5..0 80..2 165..7 29..5 327.........2 88...2 263..2 489.5 68.7 507.0 41.1 478.4 354...............1 1...1 145.4 2.3 177.268.2 376.....0 305...9 381...0 426...6 106...581....3 177...9 484.4 86...6 16.0 17...1 670.0 199...9 903..9 2... 2009 .0 Other 5.0 527.6 201....1 190. 1988 ...6 43........9 11.2 252...6 24....7 16.5 3.8 26..6 64.347.4 65.6 1.6 17..9 75....1 162...8 607.7 337.7 47.....8 81....7 109....5 202.9 1.1 117.2 182.5 7...1 59..6 141.....5 10....6 775.. 2001 ....0 1.4 598..7 17.8 81..7 132...8 32..2 55.430.8 105.....3 43.6 526.2 528.2 751..0 875.1 842..2 112..4 573..1 121.0 1.3 349..6 389....7 57...2 30.5 68.9 52.5 194.9 68....0 186..6 37....4 5......4 230.6 122....317.2 1.9 192.3 1.2 106..2 29..3 330..5 898...9 1.7 1.1 60. 2002 .8 3...318...4 1..8 379......4 50....5 157...3 108.694.351.. IV ..9 586....5 1.9 77.2 51.9 14.8 133.0 903. 1971 .4 739...6 26..100.3 239..3 31...6 194..0 196..2 233.2 46..7 34..5 228...5 25...071.7 1.5 196.3 19..7 10.4 193. 1992 .8 9.....5 86. 1965 ....5 899.143.8 249..6 37.5 169.4 2..5 405..4 544..8 122.7 853.1 120..9 1.3 34.2 120.9 329.0 190.1 174...6 1.6 31..3 100.099...9 306.. II .9 59..2 253.9 455.9 1.9 74..3 169..5 17.1 39.5 932.5 327.2 331.1 109.3 92......6 1...227...4 104.....0 71.3 131.0 111..2 418..2 Industrial equipment Transportation equipment Other equipment 10..1 187...728.634..6 36..0 61.5 32..5 64..1 38.....5 1.....9 334..7 58..8 38...4 130.2 14...7 12...8 192..4 126.9 103.9 1..... II ..3 114..9 178..2 8..4 322.....8 80...4 52..9 1....1 162......2 199..1 671....7 118. 1964 ....... 1980 ...4 154..6 147.3 66..1 1.....1 128.2 78...0 114..6 204.6 10.7 192.. II .4 66.7 132...1 95......799..866.........5 224.2 424.7 33.9 198. III .....4 1.112..6 212.5 1.....6 254.071.2 Total residential 1 32..0 412.3 168.....3 360..665....9 425......5 72.....2 3..2 195.7 187..903....1 73..8 566.0 54.....2 2......3 186. 1978 ..8 193.9 70.0 157.2 41.4 11..183.6 618..3 1.....678.6 160.....8 185.637..3 266.1 172.6 567..3 55.6 536.7 39.....0 30...0 68...0 .9 6.6 177.9 151.3 184..9 310.3 34..7 Software 0.....4 87.3 112. 1975 .3 205.. 2010 ..3 19.2 464.9 172..3 99.3 Single family 16........8 153...1 2..2 220.0 419.......9 353. 1968 ....2 103..9 217.4 114.......9 97..8 39....8 118...6 40.4 122.4 1.9 1..5 416..4 38..7 106....1 89.3 19...7 326.1 330.......6 680..8 81..5 190....8 570....6 506.0 62..5 19...7 1.9 296.3 187... 2011: I .7 345..6 155...1 18.447.4 462.6 1....4 275.2 182..927.8 718..5 279.8 339.5 75.125.2 714...7 58.3 175..033......1 147...9 17.2 168..205...5 23. 2007 .689..305... IV ....9 362..1 570.791.5 156.....0 1...0 1.3 202..8 69.5 1.9 60.. 2000 .4 1.2 135.3 252.. 1985 ..6 132.9 64.....8 421..4 8.3 93....4 509..1 283....9 62.1 265. IV p .9 48...390..8 345..118...4 424..7 1.. 2003 .....4 178..154.6 602..7 550.4 149...8 141.9 105....0 63.4 87....0 302.6 53...9 161.7 176.1 333..8 3.....0 47......0 8.580.1 329....0 170...4 23.9 52....5 Information processing equipment and software Structures Total Total 21...9 1.0 102..7 136.3 47..1 34...3 557.....9 1....3 11..717...8 183....2 32.8 1.8 236.2 990.8 430....658....7 1..6 227. 1981 ....4 218..6 84.3 31...........6 138.2 536.3 846.2 87.....1 385.5 255..4 803.1 361.7 1..6 90.731...8 245.8 19...2 109..4 995.4 10..5 417.2 80.. 1982 ...3 68..9 112.4 35...7 7.6 93.4 82....3 275.1 337. 1970 ..3 1.5 414.....5 98..1 666..6 33... 1966 .3 71..0 9..6 250.....6 414...3 331......9 183.353...2 48.3 354.7 76.9 102....6 379. 1998 .658.061..1 Total nonresidential 56..2 538... 1963–2011 [Billions of dollars.5 321...7 77.2 162......2 16.7 1.6 Total 1 31....1 92..2 146..8 336.4 186..6 142...0 39...7 1..447..4 353.1 72..1 302........4 104.2 2....6 90.....9 1.3 524...7 40..7 338.....9 31.5 3...9 589....5 189.2 1..8 197..5 33....2 122.4 118......5 54..7 65.3 1.3 208....1 27..7 42...9 180...8 84.1 349.6 37..743.....7 116.6 79..3 1..9 4.2 890.006.4 163.4 170..2 191.. 1996 .324..3 25...3 1.9 105.656... 1979 .2 113.. 1994 ....5 62.....2 1..6 433.7 8...6 172..6 4. 1990 .6 377.4 13.6 333..9 91.....7 202.4 223..4 259.3 475...0 11..3 786.2 505.9 757.3 53.7 11..2 60.266.121...8 11...2 141.7 590.3 505.8 1.2 23....8 119.070..6 257.......6 489.7 156.9 199.2 5..9 178... III .0 472..6 464.7 203.6 154......1 180.6 94.3 52......6 16...4 491.7 248..8 405.2 339.3 59.0 1..2 192...9 494.0 84.4 461..6 106..0 12.0 43..3 27...6 117..6 175..1 28..8 16.0 14....7 152.1 236.7 142. 2004 .5 126...568..6 80.6 17..4 190...2 167....9 374.......7 101.....1 270.0 543.4 107..........130.8 1.........8 433.6 93.......6 454...3 8.6 18. 1999 ..3 252.2 185.9 69....6 263..4 194.3 109. 1989 ....995.9 67...2 177.9 67.3 224.5 88.....580.8 103.1 94.8 180.4 407.7 112. 2005 ...416..4 152....1 72...3 32.7 75.7 351...2 71.....128..0 148..6 72..2 47.7 1.....0 258.9 272..7 1.....7 2.112.2 259...0 205.. 2009: I ....6 178.2 1.....8 2.8 154.4 810.1 74..7 56.7 622.5 140.9 295. 1997 .......7 198. III .5 274..0 1...7 89.4 120....2 519.7 .4 5.4 765.......506..0 761.6 48..4 1..9 84..3 2.0 1.7 282.....0 78.707.......4 501.9 137...529..... 1973 ....2 186.9 194.....3 1.4 13.0 345.3 2.6 161.0 16..2 23...7 110.9 141.3 848.7 82.4 55..6 85.8 87.1 847.5 318..2 50. II ....9 87.4 228.7 194.6 235..5 21..0 196..4 539.0 169.7 1.8 14.689.5 918..1 1....3 19...4 504.3 1..6 105...5 186.3 150..0 117..8 524....9 492...4 157.....5 1..........1 72.........9 128...3 1.5 55..1 123.4 152..9 233.0 185..1 1.3 131....8 72.. IV ...209..6 74.7 343.122........ 2008: I ..5 147.6 1..223.2 154.6 129..0 290..4 138.8 916.267.....6 235..7 28.1 97..8 72.....1 563.5 174..0 136.8 69.9 170.....1 258.2 612... 1974 .9 318..2 474..9 77.1 20....7 8.6 103. 2008 ....2 257....0 123...7 239.. 1995 ...6 532..1 191.... 2006 .. 1967 ...8 548......6 41.6 72.9 1 Includes other items not shown separately...6 29..8 449.6 13.7 342.3 95........9 86.0 70..135..5 441.9 628...5 68. 1986 .0 80.0 34.5 33.4 76... Private fixed investment 88.3 136...6 439. 1993 .7 218......039..2 18..1 9.2 190.. 2011 p .8 192..6 46.6 139.058....5 14.........9 189.2 61....6 90.0 28.2 211...7 98..2 79.... 1987 ..460...3 153..2 328.0 181.9 312...3 1.4 420..1 1.5 107.8 1.6 335.5 74.1 105.4 236.0 871.8 207.6 2....7 31.....7 197..6 594.8 175.9 1..2 46.1 181.779...1 417...5 ..3 449..7 71.9 99..9 47..4 21..0 162.. 1969 .081..0 74.4 69.....0 950.2 70.2 452... quarterly data at seasonally adjusted annual rates] Nonresidential Residential Equipment and software Year or quarter 1963 .0 216.4 26.1 174..2 72...0 159..9 1.3 1. 1977 ...2 370.5 6.3 42...841. 1991 ..9 141. 1972 . Source: Department of Commerce (Bureau of Economic Analysis).2 93.5 345.3 17.. 1983 ..3 193...5 1.5 81..6 542...5 1.8 255....

1999 . The quantity index for computers can be used to accurately measure the real growth rate of this series.5 965.8 136.....4 186.2 115.9 720.3 309.........577. 1998 ....757.7 324.......0 1.3 558..103.....8 2...122..9 185...6 290.2 262.....4 615...9 334....8 1.9 179....6 1.6 1. ...173.8 1......0 321......7 301..9 274..1 108.4 354....247...2 584.0 1.973..8 496.2 155....4 180..4 1..3 2..906..5 1..8 253..8 247........ III ...992......663....7 351.9 1..1 153.2 805.....8 664..8 1.7 Total Computers and peripheral equipment 1 Software 147.9 174..4 106...8 162.8 209.9 1.3 Other 90..5 391........5 625.......8 145...0 Total nonresidential 787....1 1.6 218..4 251....3 204.7 200......1 271..059....... II . 2 Includes other items not shown separately...1 165.7 158.791.7 1.....056.2 888.....0 638..........9 248.5 1...6 165.......4 192..3 462.3 348. .....4 150..3 184..6 109. III . ...3 516.....471..7 574...5 1....870.3 356........2 133....7 443..3 534...3 1...9 Structures Information processing equipment and software Structures 342.8 540..3 153..................4 202.5 134..4 159............3 1.1 108..1 181.....8 244..6 172.790.....648.5 775.1 321.1 110.6 155.5 624..2 162...8 117.8 474.1 574........3 375.0 ..5 114.6 336...2 1..8 187.... 2002 ....378.1 765..6 179.0 583......4 1.... ..0 164....8 151..1 Single family 240.4 387.7 101..7 134.0 917...7 169...2 444.... II ..1 311...8 70.8 175.019.1 475.....2 211..064.2 386...... IV ...0 883...2 1..2 580...5 217.3. IV .9 151.....7 173.6 76.5 315....9 172.3 150..6 193....5 314....3 729..5 136..9 705...4 1.9 407..6 1.9 336.4 263.3 602.5 185..7 408...9 861..0 428..6 1....4 1...0 346.6 1....5 1.8 208. 1995–2011 [Billions of chained (2005) dollars....5 101.9 311...7 70.094.. .3.8 1.........8 142.....4 1... III ... 2010: I ..1 157...9 168...6 162..9 321... .7 1..8 125...413.2 177.2 325...442..1 256.8 113..6 147.3 142.537..550....9 403...9 339...2 569.5 134.465.0 718...8 249..9 257.....7 529...........071....0 438.9 457.589.....9 154..........5 135... 66.805....2 120.9 310...580..2 596.....6 173........2 1.0 157..7 874.0 912.......... .1 492.775.2 440...8 969.1 1...9 321.....0 433..6 114...0 227.4 367.. National Income or Expenditure | 341 .7 338....4 327....8 160...8 142........235.0 315.9 214..7 107.2 Industrial equipment Transportation equipment Other equipment 145.1 207. .0 1...3 613..4 105. 2001 .854.1 1..2 860.... the chained-dollar estimates should not be used to measure the component’s relative importance or its contribution to the growth rate of more aggregate series..6 98...3 571.9 182...7 548....6 162........ ...3 995.....4 2.. IV . 2011: I .106.699....257...8 151.. ....4 176.. 2004 .........9 1. .3 176...274.5 1......3 181..0 142...7 196..5 69.978.....9 326.582.039..5 553..4 333.... quarterly data at seasonally adjusted annual rates] Nonresidential Residential Equipment and software Year or quarter 1995 .8 148...0 251..9 535...124..341.1 324..Table B–19.....8 1 Because computers exhibit rapid changes in prices relative to other prices in the economy.8 209.7 1..6 330.6 1.130...9 655.. .8 161.....2 168.. .2 481.1 128.4 1.347..1 277.654..9 78...539...308.....9 1.7 1...8 142....0 1..............6 453.3 65.... ...117.6 158. 2009 ......4 142..8 463....6 121.2 1..8 348..9 112.6 638...1 321.2 140.1 (for growth rates)..7 107...8 93....7 268..9 175..7 2..432.4 640.010. .4 178.9 138... 2009: I .. 1996 ....1 160...5 167......693.0 190..7 1..5 150....0 1..189. For information on this component....0 889.2 1......6 1.. ...5 1.172.1 1..1 284.5 1.....0 131.1 608..5 204....... 2011 p ..592.....4 185..9 1..4 469.....4 574...8 395..6 343.4 325.6 605.6 575...7 1..0 1... .5 316. II ..3 186..736.4 149...9 346.... 1997 .....6 1...2 708.6 144...145..... 2000 .8 437..4 109.253.4 1.263.4 1.4 583....6 129... II .1 168..2 344.5 471.....9 250... ............5 172.086..... 2010 .0 178..2 850.160.2 1......3 208.0 1....2 650.9 958. .5 567....... ..231..1 146..343.6 1...5 142..1 240...3 106..589... ..8 180.5 1.066.4 173.....8 313.6 1..0 173....0 1. . Table 5..7 119..1 318...606..4 541.4 889.1 433.....4 261.6 406.......1 323. ..7 108.835...5 415..5 572.8 354.....5 1... III ..6 267.8 203.....5 184.6 211....9 332.......081..1 168. 2008: I ....3 203........0 179.311..........9 Total 489....0 305...194...1 486..0 583..2 321..1 1.7 155.8 326..6 311.3 1.0 252...2 169.....1 98.3 148.. Private fixed investment 1....2 262.8 330...6 154...9 139... 2008 ..6 204. and Table 5... .. 2005 .. ...5 1.455....9 Total 2 450.....263.1 327...5 501...0 181....3.312..1 581.....4 143..3 154.624....1 178. Real private fixed investment by type.7 362. ..2 158.5 180..8 249.....7 122...2 434....3 1..9 323... ...2 466. ....8 1.. .....1 1..2 1.8 190..5 306.2 251.. IV p .....665.6 1...4 215..371.6 824......0 361.2 384... .....5 373..3 1.......8 384.......465... .1 147.. 2006 ..9 252.... .3 1..319..3 386..044..2 Total residential 2 456..7 540.8 193..4 345..........8 315..0 177. Source: Department of Commerce (Bureau of Economic Analysis)..2 (for contributions).1 209.4 162.9 137..3 149. 2003 .3 (for quantity indexes).. see Survey of Current Business Table 5...5 2................. 2007 ..

...3 92.... 1994 .6 143....9 1.....3 1.....1 111.....770...7 680...5 2.4 285..3 306..042.0 143..002.1 10.5 351.0 701.....4 16..0 17..3 2.0 614.8 50. 1975 .2 Structures 16.237.248.9 9..0 357...3 174..6 1....076.2 6..1 11..2 230.798.4 6..9 550.5 404.....2 120.1 1...7 90..5 10......7 113.428.0 1.0 830.6 119.5 299..9 1.6 107..9 130...9 84.3 50.9 133.7 17.1 5.0 2..9 95.4 37. 1980 .9 78.0 531.8 297.....8 88.1 2..8 225......2 54..7 1.........0 1.869.6 406.2 824.6 1....7 17.........9 50....2 104..7 2.....5 Total Consumption expenditures 59.2 20...4 12.9 819..6 243......1 14.3 5...2 304.1 347.9 213.....9 577.0 14.8 211.........3 1.6 870.2 764...8 2. II .9 143........449...0 791.3 367..8 43.. IV ..7 1.438.1 273. 1967 .3 7.....8 543. 1977 .4 80.1 1.9 94.7 1..4 14.9 9.0 96.0 196...5 11..1 84..6 756........3 737.2 87..0 554.4 113.2 2..1 611.769...157.1 90..482...1 47.2 168...2 183.6 1. 1964 .......3 1...356.0 60....2 620.3 1....8 277.7 3.6 9... II ..5 649.2 14.3 126.1 6.3 9.0 4..5 64...3 304.9 287...3 132.1 240..5 99...3 63.0 9.5 461.8 50.0 319.3 56..0 96.3 48...8 66.0 99..4 14. 1965 .7 246.8 11.9 5.2 60.. 1966 .7 365..0 303..2 112..4 79.9 809...3 823.9 11...2 103.....4 2.3 205....5 691.. II ..9 13. 1999 ..8 348..5 995.0 1.8 5..6 481.6 122.7 701.2 126.018.3 191.7 1.5 1..7 6.. 2005 .917.3 6.5 77..5 14... 1983 .5 1..1 1.....8 51..2 709....8 143...8 58...780.2 481..6 106...8 438... 1996 ..7 303....774...0 164..9 406.2 151.7 63......112.5 1...9 5.8 10.7 368.1 2..5 143.7 497.3 6. IV .2 634..8 4.3 730..1 2...7 77........3 99...0 1.4 281....047..1 16.8 2..846...0 624..8 346..9 268..5 1....6 86..222.4 Consumption expenditures 12.1 55. 2008: I ......8 5....0 16...3 321.8 1..7 101.9 39.4 153...1 48.9 8.9 324.5 67...2 188.0 10.5 298.9 354.374..0 17.4 297...3 1.0 414..1 2..9 37.3 64.1 453.0 6..4 1. 2007 ...6 70.....7 176.5 79.0 518....9 659....0 7.5 145...2 1..5 96.2 855....6 111.0 1.. Government consumption expenditures and gross investment by type.5 102...0 1.3 258. III ..038...829.....3 664.2 29.794.....455..2 19.....6 293.9 30.0 815..9 250.5 3..5 60.4 289..6 500.....7 1..4 66....8 363.....4 171..4 2....6 270..1 38...7 30..7 8..8 1. III .6 90..9 1...3 Source: Department of Commerce (Bureau of Economic Analysis)..6 22.1 9.6 192....427...4 633.224.......5 3....2 1..0 72.2 2.8 7.....4 507.8 706..6 159..8 1....5 1.9 273..6 1.9 88.5 12.631.4 143.9 357..3 1.9 949.469..942.777..139.6 532.3 9....5 103..3 342.9 1.3 5... 2006 .5 1...6 .2 1...7 36.2 225.219.....154..6 54..181.6 Total 15.9 17...1 354.0 30....8 32.7 390..2 307...6 28..0 Equipment and software 1.9 2...8 276..9 56.2 13.4 2.1 45...8 34...4 92..779.8 64.1 13.9 383...0 263.7 83....789.236..7 357..8 45..2 330..3 1.5 270...9 17....2 668..8 403....2 3...1 441...7 242..6 17...7 3..096....5 547. 1982 ..8 27.4 16......4 38.5 13...432..4 796..7 290.......5 26..1 702.1 371.786.8 72.674....5 87..8 774.6 25.....7 165.....2 514..369.8 139.2 10..1 79..4 46..7 32..5 62.....7 38..9 1..697...1 7......1 63.4 471...4 5......6 641..6 103....6 8.6 844.. 2008 .1 1.7 272.....6 15..5 195.6 466.8 143...9 1.6 1...7 1.7 1.6 12. III .....2 1.4 1..9 93...1 702...8 220....9 90. 1991 ...1 35......170............9 2..0 1.6 518.3 1.5 818.7 98.3 221..0 18.1 1..9 9...1 1.7 1...2 104..9 1..8 1..2 1.2 391..0 172.0 342.1 361.5 294.049..3 160......4 16..Table B–20...0 831....4 290..9 69.2 88..0 6...4 282.797......4 347.....3 313..475.4 1. 2011 p .7 1..7 92..7 13...0 192..7 7....6 14.7 317..2 23.2 60.2 1..0 31.1 1....9 42. IV p .5 674..8 253..9 313..3 100.....9 Gross investment Structures 2...0 353...9 35..1 1..6 1.8 10.8 54..6 356..4 42...7 435..6 84.. 1974 .8 1..875.232.1 1.8 3.3 289.7 284.1 179.9 2.038.0 577..3 1...9 6......4 32.5 526..7 139....9 91......0 1..7 223.....0 9.. Total 136..5 406..7 771.4 16.0 724..5 300........ IV ....6 65....142..8 342....1 88.. 1981 ..8 7...3 37.111......2 39..... 1976 ..7 6.6 32..4 5..4 3.5 209.9 46.8 6.2 22...9 539.7 3....9 355.066.4 65. 1969 ...0 723.7 341.0 1......2 55....7 280.3 410..8 71.. 2001 ..........2 34....9 210.983.781.137...2 10.1 376.0 28..5 1.6 35.0 1.8 93........7 175...4 15.9 283.3 2.9 254..6 109..8 349...8 1. 1990 ....1 24...7 383...4 15.2 1.4 733.2 2.....0 15.1 289....5 4..2 322.1 208....8 18.0 943.273.8 6.1 31..9 648.8 32.080.. 1968 .302.4 54.5 606.4 104..425..7 758..0 23.0 321....1 209.7 2..4 11.801.7 9.3 133...9 33..2 331.3 369..8 53..8 65..3 931..2 22.2 1.9 1.1 4...9 42..8 1.7 95.4 75..7 1..7 381.7 1.....1 43...8 354. 1992 .9 95..2 25........4 263...476. 2000 ..0 531....7 1.....2 3...0 25...450. 2003 .......5 1...2 10..6 51.967...8 84..4 733.282.3 15.6 1.3 36.6 1...2 47....3 8.6 59.9 342...6 128...1 29.5 5...8 71... 1993 .2 5.6 252....493..6 930...........7 3..8 314. 1988 .1 284..1 58..3 39..6 789.5 15.772.5 23..9 2...9 76.5 10. 1984 ..8 21.1 2.8 253.0 2.8 170. II ....9 17.. 1970 ..........6 407...8 2....9 98.....9 576.....5 18.2 181...5 1...7 28.3 17.. 2010: I ..9 258..2 1.2 710..029.5 149.......8 104...6 3.793.7 22...3 113.421.....1 1..9 336...8 8.441.9 10.232..471..1 4.. 1997 .9 2..3 1.8 83.798.8 1.6 713.812..0 45...3 238.2 1.4 39.5 8.....4 208....3 999....7 267..6 3..1 24.7 63. 1971 ....1 1.6 74..1 34.9 1.9 358.1 3...437....731.8 49.8 37.6 2.100...8 2.. 1972 .....5 32....1 25.......8 56.475.....0 7.901..6 1...0 69...5 273.. 2009 .... 342 | Appendix B Gross investment Nondefense Equipment and software 11.5 824.7 323.5 2....6 Consumption expenditures 48..1 627..0 267....3 36.8 36...9 6....1 717.0 380..3 11.8 91.105...3 9.9 22.3 1..018...7 16.0 81...8 64.. III .225..3 59......7 41.7 12..4 1...5 422..4 33.....4 89....1 184. 2004 ..1 1.3 894.7 566...7 167.....8 342.0 Total 61....6 281...2 2.6 994...8 66. 1963–2011 [Billions of dollars.3 10.6 71.6 19.212.0 15.5 2.....0 393.2 674...6 21.4 459...7 3..0 23.....4 4.0 3. 2009: I .7 68..8 29.6 55.8 48...0 55.0 3......4 156...1 62.2 143..1 373.5 90...020.8 Equipment and software 1.803...7 7.9 1....5 108....4 62.7 65..7 976........0 108.0 68.0 17.8 20..424....5 1...5 311.7 1...4 16....8 1.9 878..3 412.8 2.9 525...5 134.2 310.3 14...4 308.916..7 1.2 19..5 12...0 1....0 21...2 89.....7 123..0 27......1 1.9 409.9 77..6 680...9 28.......1 349....5 12.7 262...2 18.368..7 6...... 1995 ....9 662.. 1987 ..9 10.......2 1..234....2 410...8 249.1 8.0 4..1 747.0 437.5 680.. quarterly data at seasonally adjusted annual rates] Government consumption expenditures and gross investment Federal State and local National defense Year or quarter 1963 .7 34.7 16...7 1..7 315..9 111....3 2.. 2002 .0 118.. 1978 .......8 527..2 701.....443.4 6....1 32.2 56...9 374.417....7 41..0 504.1 162.1 2.234.1 4.5 50.9 21.2 17.....3 3.443. 1973 .5 10.4 84..6 92.6 876.0 17..1 120.1 1...6 5..8 6.1 76.8 205..8 589.5 808.4 762..5 47.. 1985 ...1 510.7 5.9 575..8 811.0 154.7 13.8 250..6 5..1 351..4 65..6 379..4 32.935...6 2..5 93.014.1 1......5 300...1 1.772..8 350... 1998 .8 297.1 36..9 18.0 284..5 740.0 354..2 4.9 193.474....408.....780.1 78..1 3.8 159....1 11.195.9 17..8 119..6 Gross investment Structures 1..2 14..7 232.7 4..1 77......6 7..9 10.8 65.4 803..7 117. 2010 ...7 5. 1986 .8 2.2 8..7 362..9 10.2 14..518...6 64.2 19.5 60.4 2.1 7..1 48.8 25.6 769.....2 251.0 218.100.3 113.4 353.4 10.....2 45..5 64...1 15...6 1.. 1979 ...4 36...1 1... 1989 ...237.2 29...5 69....4 190..3 48...8 8.4 233..0 159.3 8.....9 16..9 45.7 1.......586..3 2..0 256.9 92.4 1.5 322..8 418.294.2 233.004.3 619....0 79.3 7.4 1.....3 32...2 78... 2011: I ...929.6 Total 76.....526....5 2..329.878..1 95.3 18.

......3 545..3 309.....8 1.4 184....220.2 407.Table B–21... III .2 1.210.8 618. Source: Department of Commerce (Bureau of Economic Analysis).7 238..029...2 203.3 308....4 224...6 403.530.7 271..0 270.1 312.. 2006 .0 352...7 1...888..9 1.2 276..1 669.4 611.1 65. III .0 1.3 2.3 1..8 47.8 9.7 244. 2010: I .4 255..9 714..0 2.8 519...7 36.9 8.6 88.0 212.5 412...456..1 509...207..6 46.1 250..3 230.3 333......8 1..5 995..7 590...1 726..1 14...3 33.1 301.3 45..8 1..2 6..4 64..2 2..2 33.3 8.. National Income or Expenditure | 343 .2 718...7 307.0 1..9 224.6 22...4 11..5 1..1 1....490.8 9.9 233.6 28..2 210.5 68..056.9 1.5 98.8 222... quarterly data at seasonally adjusted annual rates] Government consumption expenditures and gross investment Federal State and local National defense Year or quarter 1995 .....1 29..5 12...043....2 38.0 598.231. 1999 .0 85. III ..5 455..2 447..8 66....478..6 2.0 876.2 361..279...087..6 1.....2 547.7 21.133.2 8...0 10...556.4 352..4 457..8 230.4 1.5 418. 2003 . 1997 ....239.....5 779..1 1.3 303.212...1 298..489.1 33.053..........1 1.1 224.8 1....5 707.0 33..7 282...2 9.. 2005 ..4 Total Consumption expenditures 1..1 1..4 9.478.3 2.488. 1998 .8 359.9 1....049..2 580..001..1 2.0 63.8 14..5 225..907.8 296..3 64.9 359....8 231....9 1....1 865.043...3 1..8 470.8 1.9 75.0 1.1 605.......8 11.8 1.517..1 66....4 349...4 634.510.....5 303.0 14..9 212....3 13..4 14..8 453.0 2.7 21.8 11.503.6 63.2 37..3 69.....9 1.. 1995–2011 [Billions of chained (2005) dollars..3 Gross investment Structures 15.6 69.6 717....3 1..2 1...0 14.3 Equipment and software 13..7 15.6 208.8 214....7 89...9 34....507.2 239......9 1...2 48.... II ..3 196..520.0 705..8 14.0 1...2 196.9 33..5 7...5 241...0 229.361..3 342.8 2.2 12.4 215..7 1.5 14.207.2 1.063...520.3 52..362.8 13..211.0 289.1 1..487.9 32...6 Consumption expenditures 201.548.1 1.9 87.0 602... 2001 .......5 66.237.9 86..440.8 657.330.497..5 91....5 14.7 11.4 1..3 37..240.552..5 11..0 2...9 86.5 7..434.5 609.7 943.6 2..5 91.2 201.219....1 14.228..5 Total 704..7 1..6 64....484.7 14..4 Structures 175..1 681.. II .3 29..9 Gross investment Nondefense Equipment and software 43..3 296.....227....493...8 484...027.9 418..514.4 1..6 2.507.. IV p ..4 1. IV ..6 2..3 1..7 643.... 2010 .2 1..1 613..520.1 196.3 1.1 1. IV .540.5 289.5 831..3 45.8 38...0 607.9 13.509.....5 273.9 222.1 7.514...8 1..7 94.3 66..6 13..3 33..499.6 287.....3 308.0 30.7 695... II .1 1.7 709...9 281.2 325........6 1..6 728.... IV ...0 12...3 601..2 65...097...0 89.2 1..4 13.303.1 696...1 982..8 1.4 227..6 1....369....7 12..207.5 8...7 1.5 1..5 16.3 37..508..1 2...0 559..453.450.1 2.3 91.2 348.7 353..3 333.9 1.6 14.502....2 68.6 718.5 1...237.6 294.1 Consumption expenditures 424.....9 66..1 971...5 2..7 57....2 401....7 43.. II .500..4 334...7 1.513..528..7 2.0 2.7 609..0 24.6 190......109....9 6.7 196.3 9.7 15.9 695..232...0 9..9 1.0 320...3 15. 2008 .183.8 1.4 1...0 62.188.0 689..466..3 188.3 708....0 33..452..6 10.7 1.8 1.6 691.7 Total 476.070.........6 1.564..2 2..1 87. 2004 ..003.2 251...5 21.6 591.0 2..7 Gross investment Structures 10..7 1....3 33....3 86..1 37....9 1..7 247..0 1.0 8.9 65...2 1. 2008: I ... 2009: I .6 698..6 94..8 44.2 202....400.. III ..8 226.0 257.530.7 8.4 14...6 227.473.9 906.4 92..5 13....9 40.7 23.2 61...079...5 254. 2002 .. 2007 .985.8 955.058. 2011: I .1 1.5 445.9 2.7 231.054.6 1.6 50.4 95.6 2....4 2.0 1.5 1..178.........9 603..8 2.7 683.3 1...1 528.6 10..3 894....6 1....0 90.1 1....9 1.1 312.. 2009 .8 7. Total 1..2 10....539...7 38...9 66.3 189....530.2 310.6 187..029.2 8......7 66..5 210.....2 1..4 85.203.2 313.5 35.3 701.4 226.....5 2.211.0 268.528..497...4 302.7 78......7 983...3 290.4 43.3 310.546.943..2 2...7 360..9 2..4 1.3 Total 227...4 570.7 41.2 14..6 Equipment and software 29.214.0 602....254....075.7 505.213.7 284..554.......7 12.0 13..7 33.3 549.2 578.079.9 1.5 470.402.6 64...9 2..3 594...8 10..7 1.3 35..056....4 694..2 1.4 207.6 567...8 Note: See Table B–2 for data for total government consumption expenditures and gross investment for 1963–94..7 694.. Real government consumption expenditures and gross investment by type.... 2011 p .5 2.0 269.. 2000 ...4 64..2 669...6 9.....233........8 11.5 2.8 71..172.224.6 18.197.2 1.6 1......207...236...8 244.4 1.9 1.1 9..9 222..570..1 42...5 7.1 594.6 1.9 9.6 37...1 1..8 357.....2 245..7 15.....9 36.. 1996 .199..2 234.0 1.....4 514.4 589...9 9.8 55.0 12.

6 1........ 1974 .4 136.......79 3..8 149. 1980 ...9 10.5 458.0 119..5 1.74 4..257...5 303..98 2........1 37...7 129. 1986 ..1 111.. .5 183...........69 3....... 2001 .1 227..7 642.....082..6 2.40 2........1 404..19 2......37 2.5 131.. 1992 . 2007 . 1995 .48 2.....1 7....4 1.52 2. Beginning with 1996...92 3... 1964 .. .2 531..4 1..... each valued at its respective end-of-quarter prices.2 2.5 162...044... Quarter-to-quarter change calculated from this table is not the current-dollar change in private inventories component of gross domestic product (GDP).2 2..4 73..........0 447.55 2..... .....1 302....084..3 73.0 1......9 34..7 66.8 769.....90 2.......23 3...9 796..9 472.....7 194. 1981 .7 486.90 2............4 185.8 2.3 457...4 148...3 424.....7 1..6 113.6 85.4 869..1 804.......692.5 825. .246.5 169.25 2.. except as noted. 1973 ....0 432.4 1...6 158..2 122.....6 157....2 44. Private inventories and domestic final sales by industry.0 31.. .......1 123.5 75...5 85...6 339...8 541..5 70.89 2..3 1.... 2000 ..0 157.0 816..5 775..0 570.. utilities....98 4....9 1...48 2.59 2.3 32........... 2003 ...82 2...76 3... ..4 810.4 465.....7 148..5 690..8 604.....9 934..8 113..7 447...6 477.44 3....16 3...2 219.4 451....5 206..6 312.2 165...2 1...4 236.2 165.....024.7 49.0 408.7 123.4 209.2 199..3 85.74 2...70 2.......... III ..1 2. 2006 .....5 42.. II ........... 1971 .1 812..66 2..51 2....5 404..........9 443.5 146..83 2. II .3 131..9 13..16 3..7 83..6 351......0 80.....5 44..... 1975 ..4 1..97 3...3 45.......4 328.7 283.... Source: Department of Commerce (Bureau of Economic Analysis). .0 794.....9 154..3 1.2 1..48 2.2 47....6 492..88 2.7 1....9 64.34 2.34 3... III .. ..2 683..15 3..6 293.742.. Farm Mining...869.3 94.8 508.6 136.7 83...2 37.804....6 38..0 425.......838... 1993 ..8 484..6 183.. .321.9 349...9 182.0 787..0 89.......1 81.353.... .. 1969 ....2 248.....5 112..4 235....7 230.. 1970 ....949.85 2..013..5 1.1 737..........2 588.6 89.6 162....7 233.6 155.9 153......78 2.8 233..5 139.6 1.5 646. III ....... 344 | Appendix B ...2 277...81 3..5 20....221..6 670. 55.....1 121...8 208.....49 2. 3 Quarterly totals at monthly rates.5 54... II . ......0 1. 1972 ..6 133.4 176...489.991....0 154... . 1987 ..57 2...9 345..0 1.4 318...1 1..6 119.65 2.7 335...........8 335...949.. 2010: I ...6 12.29 3...92 2.....2 352...............3 123.....28 2.7 89......9 69....30 3...3 603. IV ..8 147. 2011: I ... .....7 25...8 772..5 19..68 2.16 2..........8 343...7 1.6 30.Table B–22...6 63...889...7 532..27 2.2 525....76 2.3 804... IV p ..9 69.. 1999 ...67 2..4 42.3 127.......2 135.90 3... 1977 ....2 83...4 515.3 149...96 2.2 608........0 143.......6 1...148.... 1976 ..211...8 237..33 3.....79 3......1 582.1 1.2 133..1 214..8 293... 1968 .1 159....203.996.9 344.....1 162......7 689....75 2.8 58.1 595.8 44...8 52........ The latter is the change in the physical volume of inventories valued at average prices of the quarter..9 147.56 2.7 24..1 126.6 149..2 745.......225........082....0 432..327.0 875..... 2 Inventories of construction...2 123.3 38...8 557.4 595...8 28. IV .2 391....1 175...7 61..72 3.....0 90........917. 1978 .2 1.4 63..4 313.7 111.40 2.. Estimates through 1995 are based on the Standard Industrial Classification (SIC).....0 573..6 739.8 101..0 171........432......1 496.3 153..6 240.......9 66.2 1.......4 448...6 462.52 4.28 2.9 120...01 2.6 160.951..46 2...9 421.1 91.1 158...1 66.....5 440...2 66...06 2......6 598.....0 457. mining.232..9 151........6 84...0 36.0 949.... 2002 .....24 2...3 1.9 667.4 1..75 2..2 231.......9 1.7 370.7 23.35 2..... gross value added of nonprofit institutions..926.....7 1.. IV ..0 2...... estimates are based on the North American Industry Classification System (NAICS).95 3....57 2.57 2.......5 585..1 132.7 491.....9 2.21 2.86 2......2 138.............5 1.8 149............19 2....9 471..0 3....6 380......24 2.9 869.883.7 185........51 3.9 67.25 3..... .... .5 264.....0 99. 1998 ..44 2..6 95.7 1.56 2....3 194. NAICS: 1996 .1 173...1 188.....9 94. .......47 2.. II .9 85.2 137.6 388..116..99 2....9 130.....4 160....060..0 779.8 261.8 147....9 25......5 96..001.3 46..9 40....16 3..6 750.1 ..8 782.8 213. .68 2...806.....8 213...4 497....92 2....7 48.6 665.9 473.. In addition..Wholesale turing trade Retail trade Other industries 2 Nonfarm 2 Final sales of domestic business 3 Ratio of private inventories to final sales of domestic business Total Nonfarm 149.7 193.......8 456...5 84. 1983 .4 43....7 651..863.524. .9 1.394....6 159..5 575....0 195...6 1.8 1...545.5 74......7 1.. 1966 ...077..4 125.1 99...752.47 2.....0 70.....6 66. 1988 .7 335.0 924. .49 2..3 90...8 2..3 8.......0 681...2 1....... compensation paid to domestic workers. ...98 3..2 124....3 577.4 195..0 12.725..1 51. changes calculated from this table are at quarterly rates..3 111..4 39.9 464.......8 65.........1 171....0 2.9 55.7 1..1 186.0 1.41 2...22 3..38 1 Inventories at end of quarter. 1990 ...1 58......0 82..7 253..9 436.8 46...341.............2 178...981..4 268..37 2.....2 28....8 357...7 1.1 1..189..7 95.5 769.1 322. 1991 ...........4 59.....9 28..08 3.3 320..4 413.23 2.190.0 572.4 169...3 1. whereas change in private inventories is stated at annual rates.........30 2..45 2.7 635.6 557.89 3...5 333.. and utilities establishments are included in other industries through 1995..6 82..681.1 377.1 10. ..6 194.......6 249. 1967 .3 132.5 66..0 58.9 509.8 772.3 88.......9 475.. ...9 249.1 213..194.6 54.3 485..1 71......8 239...46 2. The former is the difference between two inventory stocks.710.4 1..7 150..88 3. and imputed rental of owner-occupied nonfarm housing.7 400..3 488.24 4.639.......755..308....17 3......3 69.....1 111.. .....0 334.6 1.8 2....6 1.....3 197..5 25......6 308.1 1.9 777..0 79....7 14...82 2.2 87....5 2.. ... 1989 .6 487.1 455... ...4 390...9 85.4 174.7 304..............2 47. Note: The industry classification of inventories is on an establishment basis.3 1..0 30..5 33.1 33. .. Includes a small amount of final sales by farm and by government enterprises...2 82.0 1..6 476..5 441. 1994 ...5 38.6 640......6 408.. .......5 405.2 377.7 489....19 3.20 4..70 2.7 131..0 119.3 134....018.6 105......22 2... and construction 2 Manufac...95 3.5 2.8 566.0 234.......1 92.43 2.....8 52.8 114..1 773.. 1963–2011 [Billions of dollars.3 174.....7 948...2 129...58 1.8 386....5 74.6 482.5 983....5 36. .2 515.7 64.6 807... seasonally adjusted] Private inventories 1 Quarter Total 2 Fourth quarter: 1963 .901..... 2009: I .0 88..6 101.524......2 449...3 845.7 8..4 131.5 384..88 2.5 1.39 2... .......1 319.8 114..0 354.9 858.8 137...... ..284...2 7.....9 422..6 1..057..19 4.4 285......1 87...6 537..51 2..6 281.9 508... 1979 ..9 680... 2008: I ...6 511.6 102. 2004 ..126.2 249....2 999.....938..0 111..........7 102..........5 701.........1 84..9 152..77 3. .59 2....3 45..391.5 312. 1984 ....0 803..1 29...8 22.4 840....8 17.....1 1... 1985 .........4 73..9 47.8 215...9 140..35 2.39 2....2 176..9 222.3 485.0 608... 1982 ......5 439.....3 134.....1 104.8 539.. 1965 ..1 304...42 2.......5 80...447.. 2005 ...23 2...7 90..3 76.1 914.4 703......9 391.5 1...6 372.. III .....49 3.77 2....146..3 258..04 3......4 49..... ......7 457.....6 2.....5 124..72 2......3 2.768... 1997 .... Final sales of domestic business equals final sales of domestic product less gross output of general government....0 183.4 181........54 3..32 2.4 727.8 236.5 460.3 1....

0 552...752....0 718.31 2.......5 543.6 1.8 755..077.1 229... 1990 ..50 2..7 101. ... 3 Quarterly totals at monthly rates...... 1970 .21 2. Estimates through 1995 are based on the Standard Industrial Classification (SIC).5 302.8 168..7 1.3 82...25 2.9 87....4 1. 1997 .649...0 498....8 702..3 74.825......14 3.9 717. .6 528...752.28 3.3 96. 1998 .1 369.8 142.34 2.....9 298.8 1.1 1.....7 1...9 1..46 2..1 389... 1971 ..9 417.5 537.8 428..2 212...5 1.5 82..53 2.....075.....3 417..14 2.0 1.. ..2 430...6 73..29 2..23 3.9 53.320..60 2..4 73.....4 166..7 153..8 137....2 79.....0 324.9 137..3 1.7 46.....6 484...8 146..13 3.12 2...6 135.7 1.6 726..27 2.3 309... 1978 .1 155. III .. 1981 ....26 3.. 1966 ....555...1 134.. 1977 ..0 135.30 2..8 172.7 128...4 147......1 432.33 2.58 2.5 420. 1976 ...0 1........540.0 146....0 106.7 376...6 333..6 271......2 1..9 155.. Beginning with 1996.9 140.6 93.65 2...9 576... 1994 ....0 280.7 945..7 204..2 240...671.2 441.0 156..5 284....36 2....304..8 429.025.0 81..7 72.8 1.. 2004 . Final sales of domestic business equals final sales of domestic product less gross output of general government.46 2..4 134.... 2 Inventories of construction. 1986 .. 2002 ...4 1..33 2...2 139.697.. ... 1973 .. NAICS: 1996 .... .730...697.7 94..........6 145...0 119.8 207...4 1..1 284.......3 148...23 2... II ..62 2..8 1...5 399....68 2.. III .0 135.6 47...35 3.. whereas the change in private inventories component of gross domestic product (GDP) is stated at annual rates........ 2005 .....052..8 967.6 638.. 1979 .2 237..8 99...605....42 2.3 90....8 1..63 2.......90 2..38 2.. ..1 170.. .8 1.9 738....8 414...7 245.1 832.9 1... .9 268. ..5 763.....5 87.107.....3 444..529.....65 2..47 2....2 428.5 411.4 1....2 127..68 2..72 2...2 1.5 1..9 437..4 137.1 632....4 158.66 2..4 254....36 2.164...6 718........5 218.40 3...2 426..7 81...6 1....766...6 466... 1980 .......7 390.7 427....Wholesale turing trade Other industries 2 Retail trade Nonfarm 2 Final sales of domestic business 3 Ratio of private inventories to final sales of domestic business Total Nonfarm 540..0 142...8 198...619.......0 425...0 134..2 267... 1995 . utilities. 1983 ...........34 2..3 246.7 744.9 367...4 84.......6 81..0 536.464..3 198....9 134...1 61..7 155.3 195.............3 272..4 383.8 1...15 2.....0 68.5 164............6 507. except as noted...3 211....... 1965 .9 446..83 2. seasonally adjusted] Private inventories 1 Quarter Total 2 Fourth quarter: 1963 ....7 490....1 155.....1 142...........22 3.5 288..8 1.. 1974 .26 3.....0 407.8 1.....565........7 67..7 719. . mining...6 288. 1993 ..9 136.1 44...3 222........ 1964 ...6 50.......4 1.0 209.....9 160.....3 189...7 1.68 2.. . ..........3 844. . .. 2011: I .....6 557.8 224.. Includes a small amount of final sales by farm and by government enterprises..6 732.7...83 2......5 55.7 353.........2 469....42 2......0 1. Farm Mining...73 2...4 615..685.5 156.4 148...765......0 148..373...........3 70.8 467...1 57..207.69 2....50 2. gross value added of nonprofit institutions..5 606....4 1.9 42..5 442....3 437..9 142...250.23 2..1 118..13 1 Inventories at end of quarter. .3 432.681..212.6 434..7 1......0 220.720...1 112..6 423.2 526..352..5 107... 1982 ...195....43 2.1 176...... 1969 ......88 2...6 833.0 551...9 465.....8 413....8 134.2 334..4 307......9 58.........1 159.80 2.11 2....46 3...2 206.....5 429.6 259...68 2....9 1....4 986.6 416.......4 1...5 441.. .1 730..524........ 2001 ... IV ..67 2.7 425.49 2....632. .3 397..9 156.497...7 312.5 74..........005.573. See Survey of Current Business.5 141.680....776.0 324...3 934.101....3 248...0 432.661...9 744..604..4 138. IV ........6 96.066....6 104..0 510. estimates are based on the North American Industry Classification System (NAICS)..4 137...........3 387..5 492.3 712. ..2 155.2 106......68 2...3 65.....4 200......3 160.8 97........3 1.1 137.1 191...3 2......9 155.0 163..3 159...09 3. ... 2003 ..0 147..........816.44 2....4 388.9 152...6 550. and construction 2 Manufac...6 523...460.8 229.591.....98 2....... 1989 ..619.1 1.2 516..7 77...5 119.1 400......42 2.......50 2...6 340. Note: The industry classification of inventories is on an establishment basis....3 461.3 138.7 155...1 89..8 1.98 3. .0 286.........2 87. .4 146.....4 321. Source: Department of Commerce (Bureau of Economic Analysis)..7 272.021.9 92.6 1.2 138.5 267....22 3......9 154.3 690...5 424.1 828.5 789....846.143..3 152...35 2..........1 349.........4 90... .8 676..40 2..5 364.....24 2..........2 155.4 995.9 419.0 ..5 71.23 2.3 100..6 1.8 480..2 409. 2010: I .3 286..47 2.33 2.....8 149.... II .8 91......0 390.2 137.2 146... Real private inventories and domestic final sales by industry.4 427......23 2..20 2..3 160.....53 2..7 205.21 2.. ...2 429.4 760. 1975 .55 2.....605.0 716.....1 742..9 1...1 730..8 99.8 487..696...4 392...2 644...45 2......... ...33 3....8 832.....90 2.......3 94...4 311.3 396....7 136.05 2.39 3..6A and 5..8 1....7 1..6 1..5 1..4 156. .2 215.5 764..........37 2... Quarter-to-quarter changes calculated from this table are at quarterly rates.. .4 860.44 2..3 89... .659...4 766.7 585. 1987 ...12 2.2 367..3 696.3 551...9 1.....7 111.4 450.34 2...9 544...4 558.81 2.2 1..1 168.1 857...1 747.. 1963–2011 [Billions of chained (2005) dollars......0 440. 2000 ..9 1.......8 1. for detailed information on calculation of the chained (2005) dollar inventory series..3 156......60 2..7 63.730.6 1........5 280......9 505.742....1 59...7 921....6 1...5 155...1 162..8 1.576..9 728....8 434.532.7 136.1 986. 1984 ........9 1. 1992 ....0 507. compensation paid to domestic workers.163...3 997..4 88.....3 119.6 163...6 145..... IV p .1 385.... 1999 ..1 760.8 81.8 531...515.22 2..8 267....2 271. 1968 ..9 148...52 2..2 153..6 70...5 1..1 108...13 2.....1 57.47 2.35 2....230...852..8 98.6 84...5 540....9 258......8 637....3 154.. 1988 ...5 465.............1 335...5 471.1 1..1 1..6 365.8 585...1 1.. III ..34 2.. and utilities establishments are included in other industries through 1995.2 94........0 314.9 1..2 134.6 126. IV ....4 376.........1 247..2 431..6 60....3 88.9 348....6 153.5 417.621....228.9 1...32 2...109.691... III ..6 156.8 415..9 502.40 1.3 484.. Tables 5...0 70..6 1.7 1.......0 519..0 71.9 156.............4 1..210. II . 1967 ...25 3..64 2..8 112.12 2..3 72......0 428.3 1.33 3..7 764..1 534..2 99...49 2......2 175..6 412..62 2....5 397....9 182....2 86...668........6 146... 2006 .6 119..5 407...7 1.5 158.....18 3.39 2....1 54.. II ....7 500..8 673................. 2007 ..32 2....8 476.6 1.2 47...2 844.2 152...5 259..... ...7 168..0 128..59 2.7 135..9 519.......8 441......715.17 3.....3 132.64 2..4 878..60 2.....9 671.....8 458...16 3...4 1. .1 1...3 349...7 380....... National Income or Expenditure | 345 .7..14 2......9 1.....3 309..75 2..... 187....6 385....7 316...8 142.51 2... ..505... 1991 ....1 505.5 545. .. .1 253.3 393.... 2008: I ....0 79...5 144....8 315...2 137..62 2..4 719.27 2....7 155. 1972 ..4 156....3 753.1 517........4 257.. 2009: I .0 916..3 528..3 89.6 379..9 509.7 166.836.0 644.383....9 70.7 390....6 1..849.....2 809.8 376..13 2...066.0 160.6 153.32 2....4 160.480.7 135.0 152....1 1..3 1...........2 1...47 2.2 77..600.6 1..2 69..9 590.4 1.6 369.35 2......7 1..444...............0 1... and imputed rental of owner-occupied nonfarm housing.....8 72.6B..Table B–23.. 1985 .......23 2..1 149.5 1..6 1..7 3.............

.1 44......8 36...7 54.8 212.7 155..6 19..8 12.1 49..6 66.5 61.4 23.8 475.1 –442.2 3.7 3.3 177.227.583.9 196..7 76..4 384.0 1.7 .0 484....1 6.2 –390..9 8..9 2......4 639..4 20.7 27.270..3 79.7 27..6 2...4 174...3 38.0 63..8 68.....4 953.1 15.665..0 –706.022.8 2.4 18...9 314..5 7.529..... IV ...5 1..7 2.5 ....8 67.0 .6 25.6 156...0 19....4 1.....5 1..7 99...3 1...905.8 29.0 207.997.5 1...5 5....860......1 199.3 299.....8 74..3 11.......0 109. 1970 .7 786..1 147.6 ServGoods 1 ices 1 23.7 19.....884.5 127.227..1 1.9 1..8 1. primarily military equipment purchased and sold by the Federal Government.4 4...5 4.3 –740...479...9 93...........297.253. 1965 .3 2..4 249....0 425. II ....7 624....6 744.0 12...5 3.......4 93...6 3...9 38..7 1.3 8..699.3 46..2 902.5 323.. IV p .8 40..8 369.5 80.3 1.496.0 2.......345.....Table B–24.1 1.1 26.0 2..9 203..8 39.475.9 13.....6 1.8 228.8 27...9 697.....0 21.4 46..0 1.7 1...4 3...... 2001 .911.7 1.2 2..4 396.1 49.9 3.4 –45...5 139.5 1...2 2....1 7.7 ...7 147.5 159. 1982 .6 229..6 2..776......5 500..381..6 2...0 151..4 15.7 37.7 3.9 35.085....363....8 1...9 41.600.5 2.. 2003 .... 1975 .0 .4 14..5 73.3 9.8 55.8 1..0 76.9 5.1 3.240.6 141....947.5 303...0 –1.3 502.5 1...6 59..0 From business (net) Balance on current account...087..3 26.0 1..2 343.521..3 –391..2 448. II ..542.8 16.7 69.2 611..3 28........5 1.356. IV .6 1...5 147....1 8.9 2..5 2.8 20...3 1... 1991 .9 380.724.3 2.0 491.600.5 166.711..6 44.9 431.0 257.3 10.9 284...0 302.2 353.....0 55...8 138.9 14..8 55.. 1989 .7 2.248.... III .1 56.4 184....2 752.7 72..9 72... 2.....4 1.2 124.7 803...5 32..3 3.0 1.7 571. 2010: I ....0 452..8 1..0 1..9 514.6 ..6 11.... 2008: I .119.6 423.8 1..2 67...3 12.444.8 1.3 225.1 686.6 720.0 2..... 1963–2011 [Billions of dollars..512...9 59. II .6 –695..682...0 1...074....4 255. 1997 .1 298...7 410..4 2.7 97..1 1..2 170.3 8...5 ..9 17....4 –291.2 3.........5 1.501.4 53.4 152...995...2 414.2 56..3 9. III .....0 70.316.8 –399..2 12.9 1..878.7 ..381......9 355....595..8 28..8 248. 1971 .7 1......7 39...0 –377.1 19.2 3.6 233......6 25.. 1999 .398....9 51..5 73..057.7 1. 1967 ...891.....8 817....2 –482....245....6 42........4 7.176.939..5 –493...1 1.7 10.846.5 47...5 214...8 118......4 1.9 34.....7 –487.1 68.2 905..5 69.702..3 157.2 515..435.2 226.5 409.8 504.0 –709..8 210.3 1.7 313....9 101.7 63..8 593..8 177..6 222..9 36.......8 1.5 2...6 1.5 –90.6 71...350...9 6.2 14........5 51.6 160...8 417..0 225..7 871..5 813.1 1...4 –493.7 212.7 811.......8 –74...0 22.6 6..1 4..7 –24......5 29...2 699. 1980 .6 252..8 62.7 17.1 122...7 676....041..7 273..6 635..6 4.5 22..1 542...9 122......3 44.0 .4 Income receipts Total Total ServGoods 1 ices 1 7.159......5 296..4 138.3 562.7 19.0 459....6 964....7 29.2 101......7 2....1 236.2 151....2 35.400..1 133..8 68.5 56.0 1..1 35..3 5.7 5....2 1.844.5 621...9 407.5 60.0 592....4 17..6 7... 1995 .... 2006 ...423.233..774.2 2.251.990..3 72....5 680.0 146.4 1.....3 405.013....9 45. 1974 ...2 155..7 540.4 –10.1 40.5 182.2 21.....0 2....768.1 256......1 4.740.251..1 173......8 1..1 319. repairs and alterations of equipment were reclassified from goods to services...6 149..9 559..7 1. are included in services.0 1.4 3....8 480....3 1.9 21.3 2..8 640.4 –154..2 74.9 6.9 –114.6 4.8 1...6 2..8 674..2 1..0 37..5 17..8 2..545...1 28.. III ....146... 1996 ...1 1.8 11.6 10.0 446.0 554.4 5.0 702..9 268.289.9 2.1 –604........5 77.9 49..8 305.4 1..6 184.7 508.0 1..6 117.9 59.9 424.922.8 2..1 1.7 1.193......9 867.171.4 726..9 503.1 2..0 10..7 7.....003.3 45.. II ......3 504.3 518.7 549.4 .0 16.2 501..7 545....4 293.021..8 1....7 954..888..6 –481...8 2. Beginning with 1986..1 4.......5 540...608.019.1 1.6 133.....5 –4...681...9 82.7 1.2 3...6 1.....0 87.1 8.809.5 36..6 12...5 431.8 –716...8 55.1 40..6 35.2 34. 37....2 277.4 667..162.2 10. 1983 .8 62.8 885.1 3.6 17..822.0 31..047.3 7.3 687.0 22.9 195...9 138.9 3....9 128..7 399..708.7 1.6 448.4 302..1 7...1 10.0 22...........027...6 41....5 2..8 6...6 708..7 181.8 227...............690.353.6 297..4 528....4 4....261..0 64..6 764.......1 8...5 109.1 5.3 740....9 5...6 48.1 ...6 272..8 267......3 1......7 930.3 875.5 426..4 –3...7 From persons (net) 0..142..3 126.9 6.5 23..8 239.520....2 14..5 2......5 1..813.982..7 4..4 31.3 363. 1972 .....7 591.2 37. 2 National income and product accounts (NIPA).. 1992 ..4 30.1 18.....6 1.9 27.2 –337..3 2...0 6.496..1 58.2 –679.305...115...7 14.4 ...8 123.3 94..8 112...6 66...3 3. 2008 .0 420.2 –142.0 30.304....2 122.4 266...628......363....7 8.2 554...8 95.8 ..933.2 From government (net) 3...9 21..1 –798...3 1..3 731..7 14.. 38.3 44.8 904.5 2.7 149.4 9..8 443..2 401..7 32..9 23.8 1.. 1978 .1 50..1 151...8 1.7 291.....8 2.3 384..6 73.9 20...2 2.2 700.1 336..5 4...9 2......3 111...2 122.6 12....9 31....7 1.. 2007 .4 676..4 2.3 145.4 18...7 54.7 138.......1 1.064.....935..6 2..4 1. 2004 ..9 625.0 655.2 784..6 412.2 143.136.7 6..5 73.9 85.1 23.3 35.2 21.5 .........240..7 5..113.2 71.0 320.8 150.7 1.5 325...1 1.6 721...2 3...9 1.3 413..041.1 899..2 121...7 Income payments 8. 1973 .0 13..8 69.....9 387..7 581.394.2 131.6 ....5 ..0 49.....2 2........9 370.7 18.8 73.6 13.7 127.2 283.0 574.798..8 418.027...7 154..9 413.....8 1.473..246.7 15...474.0 538.2 66..9 623..8 15.2 7.... 1985 ....0 67.6 32.279..5 1.3 23.....6 792.. 346 | Appendix B .6 2.528.9 380..1 17.8 4.6 73.7 32..9 105.3 1.6 711.1 2.. NIPA 2 0..3 1.7 29.2 4........7 145.....9 499...........8 68...7 8.910.....5 126.1 1...3 487.473.....1 2. 2002 ....8 1..4 513.1 1. 2.3 622..7 2..7 32.......5 1.9 1...4 –410.. 1984 .......2 ..8 810....7 302. 1990 ..6 38...9 397.2 772.6 2....8 1...7 121..8 388...505..9 20..3 508.3 66......5 21.1 2.. 1969 ..974.6 1.....0 7...431.9 8.172.1 118.... Foreign transactions in the national income and product accounts.0 429.1 8..2 250.6 64.1 756.6 595.1 92.. Current taxes and transfer payments to rest of the world (net) Total 4.0 718.0 906.3 1...........6 1...2 35...587.....4 1......2 24.5 1.0 106..1 596..8 1.5 2.561. .0 2. 2009: I .2 395...6 629..4 3.. 1966 .....5 –115...664...0 35......6 6.4 –35..9 22.0 5.3 264.. 2005 ..9 676.7 21.5 359.9 11.2 1.5 21.2 378.353.. 2011: I .0 52.1 115.272.3 106.905.7 9.8 39...3 3...4 2.180....556.1 2.839.1 –479...0 3...1 1. 1994 .257..8 85.0 51.0 1... .0 16.7 5.4 –12.2 21.8 156..6 6..3 856.2 3..8 151.9 2..7 308.0 387.661.. 2.3 726.2 151...3 1.3 48..471.5 1..7 279...0 573.8 24..6 374... 399.0 286.5 46.3 1......859....0 51.7 509...5 62.8 30..7 414... 2011 p .5 15.8 64.5 104...277....8 1.7 .4 720....9 317.6 473.....5 2..093...3 357..7 2.5 626..569.4 13.1 2....0 42.6 1.6 5...3 363...0 2...703......4 648..1 9...6 405..4 46. quarterly data at seasonally adjusted annual rates] Current receipts from rest of the world Current payments to rest of the world Imports of goods and services Exports of goods and services Year or quarter Total Total 1963 .146..3 559.4 186..2 .5 1..5 636.7 39.1 5....0 79.......7 –516.0 101.... IV ..208...375....1 280.3 1..8 25.434....0 1...9 ..9 –114..222.3 1.0 807....5 188...9 73.6 41.0 16.8 544.....455.2 8.4 1..4 8. 1993 ...1 14.. 1964 .4 539....3 .6 31.0 747... 2010 ... 1986 .2 1.. 1981 ..1 12.1 26.0 1..4 7.4 2.2 6.9 6.259...146..7 1.8 832..9 122.2 .8 155....4 15.4 1..308...1 2.749.0 –114..2 138..2 3.532.7 524...239..9 1.0 145.1 –129.8 10.6 30...7 8.....0 20..7 3.6 2..5 3. 2000 ...3 9...6 10.5 46..0 148...059.742..1 552...0 393.0 –382..269....374...288...6 19.9 74.024...........2 101..590.2 2..192...0 168.011...5 2..1 351..3 1..6 20......7 2.6 757.2 889.9 328..8 2........0 128..7 –4...9 1.1 184...4 72.5 2....6 51..1 37.618.522...7 228.3 245...3 91.9 510..7 187..7 2....6 33.3 7..3 22.5 729.3 613..4 66.6 –92......6 1.3 245.0 57..3 –451..3 618....7 26..9 91... 31.8 –464...... Source: Department of Commerce (Bureau of Economic Analysis).2 7...7 101..1 583.0 7.3 525...1 124.4 319...884....4 –78.3 13.4 45.....162.3 –624.9 43...2 –105.7 11.0 271..4 2..2 1. 1968 .....478..3 486.8 2.. III ..1 26..1 45...0 452.8 26...617..1 56. 2009 .430..1 1.5 815. 1988 .000.9 5......4 1...0 26.3 3...2 43.024. 1979 .9 155..9 149...0 –204..8 292..121.0 419..9 230. 1976 ...1 35.. 1998 ...... 1977 .5 29..7 2..1 3.5 45...6 25.......4 60.7 62.129..3 23..7 508.2 34.0 136.9 989.....1 72..7 680.....8 8..1 1.374.2 14..668..4 51.8 . 1987 ....1 215...2 207..8 342.9 2....819....1 52. 1 Certain goods.....4 1.055..4 13.7 48.9 9..6 2.4 2.....

1997 .0 662.. Total 845..729.6 274.8 794...1 347.....8 983..8 660..3 472..4 947........8 348.........829.818. Real exports and imports of goods and services..2 357.... repairs and alterations of equipment were reclassified from goods to services.0 1..2 1..2 1.. 2006 .9 316.2 771.9 1.047...4 671.2 564.......4 361..366...3 1. 2003 ....8 859..4 334..606.0 2....144...3 180......3 1.....1 1..194.....8 347..4 527....4 1......983..9 359...1 1.5 715.. III .7 679.5 644.8 826..0 1.7 570.9 1.2 489.9 1..645.4 1.143...0 472.252.1 504.1 359.580...8 741. 2005 ..8 524...4 1.6 1...631.6 339.......663..6 357...8 825.....1 1.2 762.5 487...5 1..5 2.6 Nondurable goods 216..784...694.9 1..643..4 1.......8 354...2 2.8 812....5 357..3 492...6 500.......7 695.5 Total 943.6 616.3 1...728....2 1.5 986...258....1 366.2 580.6 906..0 1.. IV p .. 2008 ..2 1..497.3 1..846..451.4 2.7 1..3 404..779....142..9 485.2 1.494...5 355...9 679..8 467...1 1. 2000 .501...4 358..684..9 492...5 544.825..6 1..... 2002 .3 467.9 380......6 291.506..8 873.8 1.. IV .439.0 1.436.099........4 1.. primarily military equipment purchased and sold by the Federal Government...9 484...025.9 500.0 1.8 311.7 535.211...856.3 1.6 1.9 2..8 513. IV ............719.....2 259..0 1.4 842....6 343.094.1 1...0 1......9 665.5 1...4 795..185.777........0 625.. III .7 763......827......8 272.. III .0 349.115.001...9 229.6 365.8 1.1 462..554.. 1995–2011 [Billions of chained (2005) dollars.0 493...849.....4 791....9 1.122...4 1.4 1.8 1.5 1..6 522.9 362.8 625....4 731.5 2..6 1.925... 1999 .9 670.2 843...164...4 517.1 424.......2 223..Table B–25......8 1..1 397.8 506.7 1...2 848.1 624.071.4 2. 2008: I .0 2.508. 2001 ............8 1...7 624.8 612...164..169..8 619..9 1...0 583.8 1.3 206..6 1... II .649.203..2 1........235.154.3 1.8 2. II ..2 549.024.0 1... 2010: I .9 786.3 367..825.1 915..3 1...4 648..0 344.082..6 1..116.3 1.0 683...273...7 1...422...8 1...6 847.1 1.9 271...183.372...178... Note: See Table B–2 for data for total exports of goods and services and total imports of goods and services for 1963–94...090..4 514.018..193..3 1...776.8 2.8 478..3 870........0 Services 1 272..1 2.....065.. 2007 ..3 843.8 1.809..5 512.164.....9 190.2 397......0 1.6 1...9 237....5 329. 2010 .2 367..1 263..3 372.6 1.9 1.8 1......... quarterly data at seasonally adjusted annual rates] Year or quarter 1995 .783.3 1..1 1 Certain goods...8 352.599..107.2 655.7 1.785.. National Income or Expenditure | 347 ..151.......6 491.....2 1.2 357..5 532......0 319..9 498.0 1......6 331....4 347.1 991.3 1.9 692.8 666.836....749...4 343..0 2.0 361....638...153. III ..3 1.3 2.678... 1998 ..2 402...8 682....155.0 430..577. II .3 661...4 1....8 256....027.099.0 1.6 240..910..8 396.131.1 1.....5 279.8 355......187.323.0 1...143.6 626..1 821.. IV .058..592...0 730..8 342.7 686.1 1..7 1.....2 615. 2009 .....187...4 1..6 710..1 1.8 411.7 2...2 387....026.4 1.8 1. 2004 ....5 364...2 281.188...1 1.060.9 1.9 1.....7 Nondurable goods Services 1 360...5 333..... 2011: I .....7 1.151. Source: Department of Commerce (Bureau of Economic Analysis).3 355..8 Durable goods 363.6 Exports of goods and services Imports of goods and services Goods 1 Goods 1 Total 574..4 1.449..708..157....7 1.7 776.4 2.9 2...4 759.4 1..2 1.......6 466..1 1..9 1.300.116.8 668.180.4 1..2 299...098....6 694...716.145.093.9 1.2 1.... are included in services.2 813... II .305..7 1..4 348..1 795.9 1.6 1...8 351....1 2.449...3 387.578..781.5 1.181...3 801. 1996 .120. 2009: I . Beginning with 1986.5 715...085..5 767.5 1.0 399...6 1..0 384.4 237..141.6 380.0 1..5 255..2 957.646.2 661.3 1...7 308..0 404.2 688.4 1..3 474.173......0 756..7 944......7 1.7 269.805..5 Total 765...7 1.2 1...3 335.6 1.3 639.6 1.5 Durable goods 422.9 383.204..4 706.....4 829.205.5 861.765.....4 976.852.088..4 1..5 837.855.......693..4 244..024.... 2011 p ..222.243.1 1.1 676..

.818..070.237.0 1.9 14..8 14.8 14.7 –95...9 –103.199......4 538.8 105...1 686...0 15.9 2..4 99.182.......607.4 1.1 9..6 67.5 2....142.....7 1.9 5.5 286....480.4 15..087..5 12. 1995 .1 8.6 32.3 10.......... 1969 ..6 12..1 611.6 –2...951..3 31.3 99.724...2 480.........804.5 130..4 12.......6 13....2 7..313..2 210..4 81..0 1.0 504...9 1. 1973 ...4 11...6 12..5 912..9 1.1 12.0 651.793..254..290..5 264...1 13.2 323....5 963.7 1.0 704........ III .2 2..3 9...9 929...... III .0 Private 45. II .1 12... 1986 ..200.605.......6 101.3 9.5 14. 2010 ..4 4. III ..094..4 1.....094..790.2 663......9 144.869.1 79....... 1966 ..7 3...181....406....176.5 28..444...5 138..9 16..246........2 ..2 12..9 15....1 8.9 674.9 12.0 5..4 74...914.......120..6 1......414.0 475.570.1 602.....950.......184.178...2 184..1 90. 1968 ....542...284..696.2 2...5 112.0 64...9 626......1 355....596.6 1.....0 1.....4 311.810..2 124........2 45..8 439... Relation of gross domestic product.4 36......8 3.444....386.344....784.3 14.1 2..939....5 245........353..7 ...2 1...085.1 104..6 491.4 13..100..7 3..8 14.571...788.939.8 1.377.7 323....1 393...4 8.. 1964 .180..396.329...........0 2....6 7.6 21.1 1....2 6..9 –71.....5 571.939.4 208.....2 724.3 7.4 6..... quarterly data at seasonally adjusted annual rates] Year or quarter 1963 ...6 14.. ....8 4..588....053...800.5 188...885..8 909..5 7. Gross domestic product Plus: Income receipts from rest of the world Less: Income payments to rest of the world Equals: Gross national product 617..8 8..698...8 77..5 899..3 ..143....395.2 710........4 11...4 322....0 70.... 1965 ...5 1..... 1967 ........3 284....6 79.660.4 744.6 49.248..962.5 380....4 11..031.... 2008 .2 323....2 231....2 14.059.4 2...7 73...256.2 524...3 66....4 545...729..4 23...7 871.1 7...081...2 4.Table B–26..0 12.5 451.5 558..443.477.087...7 6..840.4 3.8 269.081.......738.5 12...005.1 2..9 1.392.530.7 841.4 10.1 110...856......1 3.......6 12.9 4..447... 2002 .5 282.022.....5 3...0 12.5 1...2 –6...9 52.8 –9.9 10.7 3.594.....822...... gross national product.....545.1 529.8 13..460..246..... 1970 .841.3 164.0 113.4 1.7 12.9 2....733...967.594..8 15.4 13......0 5....5 256..4 9. and national income.5 186..4 –8......511..1 13.3 –85..9 –134........253.9 888.2 42.016..8 9.. 2001 ...6 56....290...9 4...9 15.0 244..4 585.....857...0 13...1 320. 1997 ...715.1 5..........8 5...1 4..1 138..8 5...5 342.8 14..0 28.1 4..0 7....110.....6 1.. 2007 ..6 3.126.....754.508.7 744.151.1 1..5 49..295...6 726..185.534...9 1.6 25.2 356.. 1971 ......2 986..415..5 218..6 1.8 12....6 11.0 825......9 48....6 334...5 8..0 –242...2 12.9 32.7 84..557.3 448..6 936..4 599..... 1963–2011 [Billions of dollars..1 1.012.7 28.......5 13.4 1.4 1....7 1.. IV .408..259....476..4 789.8 1.4 122.609..5 1......3 1..2 151....277.......094..595.5 691.3 24...9 1..5 5.4 1.878..1 792..9 26..531.9 653..6 907.8 6.0 1..4 85..3 505....2 1.354.736..2 67.6 14.5 154.2 14..4 14... IV ..........1 1....1 8...0 729.3 7.8 832.020...044..4 49...4 1.......2 1..767. .... 2009: I .....2 101.824..8 6.. 1992 ...6 724....225.4 –22...141..6 11.6 11..8 1...0 14.5 12..9 8... ..650.0 271.835.9 90.8 5..5 39...126.5 497..8 601.084.2 8.. 1994 ...8 –7. II .273...0 15...9 14.1 212...... 2006 ... ..6 743.4 2..... 1981 . ..566..1 323.5 652..3 92....297.3 323.7 109...449....562.1 21.4 754.0 4..1 9.....3 7..274..119.0 6..6 1.9 204.1 2.6 14.0 1. 1998 ...4 12.4 155...334....896.4 279........7 89..358...3 51...230..4 70......1 1..870.......6 12..217.342.3 24....7 190.4 1.482...0 15...7 229...2 4.......1 –10.8 13..8 1....522.1 160.........4 151... 2003 ...517......030....8 14.....6 1..983.305..4 298.5 14....7 13..... 1978 .5 14..6 1...2 14.874..2 869.853..9 1........467.. 1990 ....541.667..0 –14...6 2... 1972 .......6 4.6 349..4 778.8 803..9 2. ..4 1.......8 6...147.2 12.........5 291.5 1...3 36.8 12.9 16...5 750.938..1 168.3 5.8 487..4 15..2 1..7 3.1 –58..2 24.2 353.838.2 10..7 2..637...8 14...384.3 821..1 352...6 1.351...381....1 464..3 12. 302...529...150.8 6.526...0 1.460..3 121....989..1 339..4 1.0 1...1 875.....050..371. 2004 ..460..5 1...1 35.4 12........555...1 177......2 6...... 1984 ...3 668.2 1........8 10..... 1987 ..2 4...3 1..402..0 42.5 319.2 721....886..1 12... 1999 ..9 14..452.1 648..4 165.7 335.0 1.7 3... Source: Department of Commerce (Bureau of Economic Analysis).9 121.. 1985 .......5 Government Equals: Net national product Less: Statistical discrepancy Equals: National income 17...... 1993 ..2 108.0 573.2 268.7 9....875.7 624.9 1..........854..5 504... 2005 .159...635..9 9......8 122..0 93.812. .5 412.332....9 513.817.9 56..3 61....2 542...9 308.135.7 76...841..9 54.720..5 12...1 11.9 4..7 18....9 905.338. 1976 ...2 16..920...7 158.....273...5 708..286..4 787.7 1.......430..7 –22...9 1....0 1.3 16...3 1.858.789..018..8 699.5 387.0 14....0 915..939.7 1.574...8 163..0 12.9 473......499..9 14. 1989 . II .......3 11....6 12.930..0 179..8 1.0 747...0 819..1 10......... IV p .......944.......5 2.1 12.8 1..8 2..9 332.....4 18..724..........9 1. 1979 ...515..126...7 –7...9 6.0 29.920..840..664.....2 1..627.. 1982 ....7 5.2 6....854... 2009 ..210.0 639..1 37.... 1988 ...8 559...3 117. 2011: I ...4 2.091... 2011 p .4 369......6 128..755.432.633.797..515..856..1 7..4 752...5 856.0 14.286.4 13....4 2.....038.4 14..2 14...942...0 7.355.3 199......5 81.....3 12.....478..6 3.....1 44...... III ...2 626.2 1.315......957..5 10.3 47.597.5 1.......931..5 6.3 313...123..8 343..7 990.6 719.6 29..5 4...9 3.4 –12..0 14....027.1 622.0 77.2 7.0 716....622..868........... 14...3 151. 1980 ..051.623.......9 344.3 6..0 12..028..6 9.4 676.....8 214. 1974 ....... 1991 ...2 .8 92.3 2...866.9 14...6 42..026.8 31...6 1.9 314...5 29...522.461....1 621. 1996 .....6 7.0 13..7 174....800.3 433......9 1. IV .....5 135.534..3 23.3 1..4 1...0 5.134.0 6.217.....3 12.5 82...... II .7 3....1 10...6 5..0 ..2 68..512..109.854.9 85.....754.6 187.8 45.994.... 1975 ..3 1. .9 501.9 86.0 197.8 127..7 891.3 12..8 150.... net national product.562.....9 4....766....7 1.0 6...... 348 | Appendix B Less: Consumption of fixed capital Total 63.... 1983 .542...856..3 23.9 1........9 64...4 6....7 9.5 26.534.691.5 97.1 474.492..8 1.....0 15.......291...3 8.4 1...2 5....2 1.244..6 1.1 325.534..3 3..1 108..1 8..2 291...7 8....294.341.....3 676..851.1 525..2 140....609.....590.....293.3 837.7 4.232....1 5....871.5 3.9 984.................5 127...2 231...867.8 5.... 2010: I .2 20....2 5.....9 360..3 2.126.1 12.6 560..8 9.4 .5 702.5 13.893..6 13...391.6 357.934.606.......4 12.9 1....5 61.... 2000 ...866..394...0 502..540..433.0 7..1 3.9 –0....5 1..5 1..043...8 46.9 11...542......5 1.382..4 1.289...5 636....642..1 151.0 8.4 661..1 111.797...035..5 4.. .6 –52. 1977 .......8 2..693.....0 792. 2008: I .....0 59.7 14..803...842.8 261.....4 2....0 250...5 106..3 169..5 329.5 1.2 12.....3 3...3 718.5 1....992...2 13.8 3.099..

222.....197..232.0 268...4 878..4 1.333...0 12...0 1.4 19....5 27. III .0 429.0 75.5 872.9 38.8 81.. II ....2 –.729..4 Current surplus of government enterprises 1.2 ..937..2 40.9 45...8 59.4 25.9 1..1 878.347..217...4 1..0 5.....5 1..2 1.798......9 4....7 921..7 12.9 218....373....9 656..............0 .1 628...3 8..568.1 12..8 12.9 6.5 1...0 138......4 9.7 421..1 1..460....5 281....3 12.9 83.9 1.3 35.5 976..4 3.5 85.7 1...2 1...0 133.......1 1.5 317.9 12......027.5 3.....7 2...9 962..474.1 444.3 170...6 4..8 1...802...3 64..724.358. 1975 ..6 543. 1999 .1 11.....0 966.5 41...0 132.. 1963–2011 [Billions of dollars........039....1 11.....4 5...4 506.522.961.....559.....1 989...6 362...........777.138...7 133.289..8 2..165.1 1..4 205...9 –15...4 8......6 1.0 –16..0 –.4 76...6 124....1 366....5 994..269..057..9 –...9 1.0 1.181.0 721...9 55..0 ..8 920..3 –6......6 988...7 166..6 2.857.2 624...7 661.....3 65...150..508.4 354..7 669...0 477..5 577...7 778.4 17...........1 961.8 137..0 2.718...1 32. 1967 ...4 596...3 82.....8 986.. 1990 .6 12....1 1.938.2 39..1 33...2 966.5 314...... IV ...3 1.3 152...0 2.635... 2009 ..0 –15..........7 134. III .341.2 996..937...7 140..4 2.4 662.9 .3 371.910.2 ..396....8 6.1 –15.6 7.1 341.0 856.8 843..126.0 ....1 461........2 1..8 959.0 367..005...8 2.....344...2 1. 2005 .147.3 2.....1 2...5 987.9 135..4 921.....7 12.0 6. 1981 .. 1987 ...070...6 13...056.2 12..8 4.284.3 34...3 332........ 2008 ..632.0 1. II .......1 986. 1991 .175.....5 5.8 223.3 716.942.5 7.5 972.9 653.3 426.........1 2.0 883...0 652..3 113.. II .....1 424..3 345.557. 1978 ....4 14..341.2 69. 1972 ...2 821..6 1..7 44.....724.1 13.2 15.248.2 983.1 5.............7 984.6 3...0 869.9 3.4 1...242. 1993 .879.5 1....... 2003 ..7 1.. 2008: I .........7 2...1 496....8 555..2 550.6 95. 1983 .846.....002.5 1.1 –.6 453.1 –5. 2010: I ..6 235..872.8 767.5 –.....0 –14..4 398.273..7 3....582..2 11...5 1.0 ...........4 1.9 112..408. 1965 ..6 1.1 2....571....3 1..1 949..6 909.. National Income or Expenditure | 349 ..7 40..6 5.0 56....1 14....3 86...4 7...6 –15......5 –15...444.1 1.8 733.....2 358....723. 1995 .9 665.1 569..5 3..031...5 1....7 135..790.....360.9 1..7 523.2 5..268....110....517..2 532...6 12.....0 15..707....8 51..282.1 46.. 1984 ...7 5..2 195..1 69.378.3 838.2 54..0 ...2 12.. Relation of national income and personal income... 1974 ...8 –15.6 903.0 3.0 ..3 5...3 12.... IV p .3 555....246..7 338.609..1 545..3 5..3 279................5 514....5 1...1 ...6 4.....944....836...9 53.7 1..1 92...4 757...2 995.3 225...0 .....6 22.797..8 3.8 2.5 –13...1 97.7 525.7 782....0 .9 827....4 51.0 141.2 127.....8 10...4 31....1 2....3 116..9 Personal income 479..636.5 929.7 –2.955.1 4..... 1969 .....9 47.876...3 111.....4 529..000..5 434...7 2.5 4..0 –20.7 3........8 232.325.1 9.4 ...252....3 4...743.......0 ..7 955.0 1...2 70.........909.....5 –3......5 36.1 361..5 1.5 715..2 12.......334..6 3....0 ....5 750..591..0 .5 425.....2 2..0 467....1 ... Plus: Corporate Net Contribuprofits Taxes interest Business tions with on National inventory and for current income valuation production governmisceltransfer and laneous payments ment and capital imports payments social con(net) less on insurance.080....9 226...874...5 224.. quarterly data at seasonally adjusted annual rates] Less: Year or quarter 1963 ..... 2001 ..6 479.. 1976 ..8 7. 2010 .8 12..1 93.110.........341.. 2000 ..5 –4.0 ..696...7 –14..........6 812.7 1.0 1....5 94...184.167.0 ..0 Personal income receipts on assets 47.9 924...2 977.874.875....2 731.0 .205.1 548..8 141.....2 84.7 7.6 12.2 Source: Department of Commerce (Bureau of Economic Analysis)....328...2 –11.. 1997 .. 1994 ...3 535....137..0 1....1 407..4 191.329...2 ...1 992.362.871... III ..1 11....7 2..2 1..035.7 364.2 33.0 .6 1.5 367..099....6 985..3 481.8 1.3 1..693.0 .4 323.784..0 ........6 22.5 8.2 418.3 –14...5 710.9 457..5 1...0 ..3 434.. 1970 .340....724......2 12.060..7 95. sumption subsidies assets domestic adjustments 559......0 ....5 917..059...0 7.8 648....2 59.3 7.....7 556...851.430....0 12..1 2.930..360.3 271.2 410.5 101.9 242.510..3 234...0 257....281...9 2.....2 2..2 –1...5 101.3 1...2 75...6 525..9 20...693. 1971 .2 694.4 90.0 201.6 12..0 ..185.7 6..1 Equals: Personal current transfer receipts 32.7 2. 12.9 1...6 12.952..6 .0 194..031. IV .027..6 –14... 1966 .5 2.1 285......1 711.6 5..8 1.....2 984.0 1.9 259.6 85.0 20.....7 1.......542...6 –4.....8 298..3 318.......0 884.9 133.5 318....3 12...231.005.5 1.... 1985 ..0 –.8 6...0 974.851.....2 751..6 13.5 ....1 4.165.5 –16.1 62.9 819.6 162...6 1..4 1.......2 455..... 1986 ..5 1..8 790.0 136..4 508.2 2.6 870.. 2007 ........696.....461...8 –16.840..5 12..9 Wage accruals less disbursements 0.415.7 1.............083... 1988 .936...3 888.8 603..9 11.1 1.2 –3...188.964.8 1..1 72...0 101.8 826..9 –5.. 2004 ..7 3..2 9.6 –14.......4 162....406.2 9.7 1.1 ..4 1.924.7 564..0 ...........3 935....0 103.9 .970.0 121...301.....2 1.0 874..0 12.5 82.4 971...7 817.....7 5...7 134.766....1 951..7 1..1 3..2 86.203...262..........2 9. 51..721.2 89.6 594.....0 .931.0 .5 134. 2006 ....4 8.1 2.6 –2.1 81...0 87.....018....1 656.5 122...1 –.....2 10.3 1..453.4 13.......9 488....7 875..577.6 1.......3 12....021.....5 947....038.8 –2....1 13....5 2.1 1.2 12.2 8.3 12.8 53..9 451..3 2.1 ..8 8.7 400..2 977..2 1..938.7 286.......979....3 872.3 14..8 920.246..7 958...... 2011: I .......2 –2.7 9...5 57.7 1...7 543..4 1.309...2 178..1 ...........0 109.912..7 –15..3 601.0 ...846.4 120..7 991..605.5 10..8 101..5 385..7 208.035.595.....3 101.9 1.5 1..0 ....456.4 512.9 6...2 97...312...433.9 40. .4 64.608...800..0 171...4 11....5 1...0 ..... 1964 ..6 96...3 1..1 1.4 13......1 9......800..3 466.......7 1..9 34.803.Table B–27.1 115..6 135....331.8 383..3 2.0 11.. 1980 ... 1973 ...9 1...3 –5.3 14..7 17..336....6 13....1 2.2 –15.....200...7 385.2 784....3 9...1 9.415..4 4.3 123.0 .0 1.2 4.2 12...3 628...9 181........6 535.4 12...1 –16.....1 9.6 591.2 .3 4.006.4 539.....2 79.5 542..347. ..062.525....785......6 30.....9 1.883...829..9 11.328..7 22.496.7 88....0 184..8 4.......6 190.8 13.4 75.........4 –....346......1 1.....4 2..1 1.3 705....6 48....5 1.....2 209...6 –14..1 1.1 43....438. III . II ...707.........2 –1...1 131...2 970.2 930... 1979 .....2 6. IV ........485..9 –3. 1968 ...8 274...9 745.7 146...6 12.3 327.1 587..0 1.....170.0 –13..8 –16.833.....7 900.0 ..513.....6 1..2 17......3 –.7 59...0 1.5 778.5 4.1 39.......8 928.0 5.....840.5 603.059...... 2002 ..2 225.733..7 1.6 ..4 994....7 39.2 2..6 130..1 .8 161..789....2 36...3 112.9 –16....3 544....9 1......6 16..1 137.7 8.5 652.035...4 303.0 1.609......0 .6 133...5 993......0 952...4 205....534..4 2..0 371.2 3.....0 –.6 607..2 1.. 1977 ..4 2.268..4 504.7 801..1 430....0 589.6 496.....2 6.2 387.. 2011 p .248...3 152.1 124.571. 1989 .5 115... 2009: I .794.......029.6 39.0 .9 1...0 .3 964..8 117...0 .0 985....0 ...0 21..1 911.. 1996 . 1982 ..336.8 1...246... 1992 .7 12.5 2.522.......7 68...3 74..408.4 23......... 1998 ..

919...069.1 38.2 871. 2...065.477.6 1....071.124.4 178..0 473...100......251...6 502...8 160.1 811.3 143..7 265.........4 408...724...9 470.195. 2.6 20.....6 161.6 1999 ..8 1.326.7 496.1 367.5 1.9 154...2 40..1 329...7 1....185.2 6..852....160....0 2005 .6 6.4 31...5 55.7 1....9 II ..8 39..074...9 Other Total 254......9 1.063.5 981.693....2 1..4 22...522.982..8 2.050.7 779.180.1 750..241.188.735.8 61..440..1 5.5 181.....4 6..026.189...5 1.......3 551..6 6...6 159.7 254..2 23.083..741.083..693....1 1967 ..406..189..120.3 888.5 5...5 38....6 305.6 1.111..5 1..3 2......0 1..8 1..6 11.7 1...0 518..250..071.4 1983 ..8 500.5 1...0 97.5 870.1 66.. 12..3 67..5 82.2 370.1 1.6 193.1 747...5 78.... 11.5 285..6 960..1 923.2 6....025...104...0 5.172.0 8.1 30. 2.0 22.103.....2 4.7 42.9 6..9 1..0 1.9 1992 .....0 1......4 1.595.1 519... 350 | Supplements to wages and salaries Appendix B 314.4 19.052.....112.7 39..7 1......023.3 787..1 417..4 86...5 1987 ..0 1...9 1. 750.3 814.....151.9 21.0 472.9 139...9 350.2 198.8 708..6 617..113..3 79..6 365.3 429.2 215.......102....0 35.4 218.2 125..1 67..0 19..7 998....530..2 1...5 472...168.5 297. 1...1 1.071...115...5 6..2 308..7 1.......608.3 1995 .7 74.....1 262.0 4.6 220.8 701...5 499.6 20....2 2002 .2 64.4 176..0 495.550.0 984..0 6.8 348..9 3...557.2 404.326.8 771.....5 119..6 468..7 628..057.9 4.8 272.3 428.6 545.2 1966 .8 400....0 1..4 238..8 772.5 429.7 470...1 7.022.....2 4.5 6..4 63.942..819.5 1..3 1.9 55..7 206..851...6 2.1 358.7 2.7 1.2 423.641.2 889....8 3..2 926.301.... National income by type of income....677.430.5 629..8 18.5 1975 . 710...1 471....1 264..9 1..5 6.3 479...3 930.....7 445.7 2. 3...6 874...5 1..033.1 142...016..5 143..931.6 278.7 2.1 427.245...6 333.8 1. 12.090..327.2 52....1 2011 p ..9 28.0 29.. .2 4...4 535..021.5 3...1 1974 .......2 1969 .1 19....0 8.2 1..2 188.335.2 6.7 1...2 323..971......7 46..1 23..9 2..073...631......7 Nonfarm 45.278..2 358.....8 299..608.498....6 4..7 III .....1 1....0 2..519.406.... 601.....9 1.5 191...........035.059.6 51...9 IV p ...3 1996 .844...1 173.190...018.7 1994 ...6 1.219...........2 20.9 725.7 1.518.1 1.3 6.2 69.5 6....9 406.4 1..0 Government 60.248.391.6 408.....068.....144...5 2003 ..042..7 821.7 4..433..4 8.1 1.498.5 96..0 1.........729..9 4. 12....1 IV ..3 184..... 12.0 7....9 669..9 13....5 1..8 58.2 1.6 88....2 II .6 28....8 307.606.9 69.8 961...0 1...5 281..998.300..7 475.803.2 62.6 44..4 8.147...0 64.6 13....8 74.8 34..444.3 46..0 396..0 1.6 115...5 212............9 60.5 2...8 289...126..6 114..3 3..408..408. 2008: I .5 18.. 12.099.8 8.6 658.5 41.025.9 202...873..602.7 319..089.573.3 46..2 2007 ...081..225.... 12..2 5....4 7...6 28..0 113.1 1....5 4.191.7 233.137..5 28......242...2 27..3 1986 .016....9 342......9 1979 ..059.....8 2006 .833.....0 274..073.2 4.8 1982 ...1 6..8 321.9 245..341..6 174.....7 73.6 186.6 459.3 1985 .8 840..3 59..6 30.8 467..1 373....871.4 5.438..7 459..2 5..8 385.073.5 41.696..1 32...7 12..1 349.1 760...1 452.027.8 190..0 1.7 5.4 4. 1963–2011 [Billions of dollars...1 147.175.0 5.179..070......545.2 1.089.9 337.........8 119....8 12..0 611..4 Employer Employer contribu.4 102.108.359..457.....127.1 1.035..8 3.....9 6..705..5 5..609........0 11.0 130.092..1 980.2 126.1 IV .........4 162..531. 4...1 1.....329.280.4 32...875..6 710.2 16..8 2.....6 117...6 1.9 496.317...6 5.2 474....130. 13.1 2009 .0 339......2 658....9 26.9 103...101....5 1..4 495.814...7 2.031... 13.....070....096.2 455.076.002.560...8 47.1 352....5 746..938. 2....9 1..511..952.246.180.....6 1.3 3.046...3 1973 .8 638.5 442..9 6.805..035.617...273...9 673.5 1....5 49.. 12.9 873...3 22.2 334.5 49.... 559..7 105..191.113.0 22........5 35.479..1 228....5 324....0 13.4 792.1 1...8 Rental income of persons with capital consumption adjustment 19.7 222..9 1.5 313..0 1981 ..533..8 1.4 457.9 218.8 26.6 931..3 4.706. 345..2 5....8 817..8 28.7 1.......0 2000 ..781...1 913.1 2.056.3 345..2 11.4 1968 .997.6 1..248.005...7 157.196.2 39....7 994..477.113...1 246...0 609..587....9 III ..0 147..5 4..1 7....1 22.5 1.0 937.110...0 589.5 1..6 37...8 894.7 25.8 1.0 3...5 2.7 1.....0 5..271.401..387..1 71..4 86.1 456. 3.7 1.7 890...578.. 12..583.5 7.......0 1.6 45.......971..8 351...6 1.8 51.175....7 476.6 2..8 354..4 1978 ...6 23....425...8 1...1 1993 .095.9 1984 .9 68..522...4 1.5 36.6 475....0 366.5 243..5 5..1 888..0 41..344....2 1.. 4.8 12..4 1..385.7 8....6 132..119.3 414. 3..1 5..9 2001 ...439..3 159........2 733.... 1..9 20.9 397..563.......2 2...5 58.... 888...797..352.1 902.6 5.1 1..8 791. 9....4 214.084.2 146.6 1..0 1976 ..7 1...2 687.3 1.8 5..9 8......804..809..3 3...9 293.9 1...9 22. 5. 9.9 5..5 446.4 5.....7 Total 56.3 6.4 1.0 17.......8 6.4 5.454. 12.............. 1..9 II ..035.131.8 469. 8.797.3 1..057.9 7.957..4 185...4 32.0 7.0 3.2 42.......203..4 845.5 215.5 1970 .6 1....0 1..517.788.222.9 148....5 638.264..7 1997 ..7 231....5 1..2 3.107...5 181..7 1.636...5 1990 ....2 495..7 65..8 991.217.9 491.027...0 1..3 65..6 714..112.2 146.2 40.8 363.092.... .5 59.7 1964 ... 12..496.5 1.411..1 1..... 4.087...1 984..5 36.4 44..1 274..417.4 1...188..3 6.714....1 1.0 20.7 19..2 5. 10...... 13. 1.7 43.399.6 71..4 2.2 62.7 354....7 204.534.282....6 1...029.6 485.0 318..1 261.0 32..6 1972 ....6 2010 ..3 232.3 7...7 3.1 516..3 952.6 5..4 2..827..2 1...3 585.7 8...8 137.979...4 1.6 113..127..5 118..567.6 1...3 1.181.554.4 36..3 332.... 9.0 13..... 652.0 1998 .097..855...353..265..3 948...0 23.494.639.8 899...2 77.9 941.070.7 5...538..840.9 1.5 1...6 6.4 49.2 1.3 577.4 1.... 1..382.7 III ..4 1.4 3.3 4..4 2008 .733.3 457..9 22.1 1..600..232.3 1....113.6 294.3 6.. 6.......4 615....3 60.5 20.8 6..5 1971 .6 105..7 399......531.9 33....373...Table B–28. 5.9 560..8 2011: I .6 900..472...133.154..8 572.4 514...... 7.5 184..446.0 1988 ....954...806. 12..253... 12....609.... 6..8 32...960..8 379.9 20..0 167..1 6.8 44..3 6..6 307.987..9 21.2 2......9 35.9 166.6 1....461.2 595.4 7.217.4 6.5 492..0 648....4 38.4 See next page for continuation of table.620..410...103...465.190.0 548.7 12.3 325.....5 2010: I ....256..4 3...2 1.....6 584.1 3.. 5.0 2.6 378.550..2 2004 .. 1.3 37........1 1.5 64...0 8.......434.0 237.7 1.048..0 481...3 2....4 7.2 1...........0 583.415.4 494. 1..1 225...5 84. 13.5 1991 ..052..4 61. 12..1 623....275...840......3 1. 12.4 8.6 1......1 458...5 1.1 23.7 718.228.529.3 458..110..665.5 1.. 5......0 1...5 22.9 78....contributions for tions for employee government pension social and insurance insurance funds 18...7 1..3 5.7 96.106.0 842.3 1.039..0 1..3 1980 .. 821..188.4 12.2 7.1 565...1 239.046..4 2009: I .9 1...5 275..9 5.522.... 12.3 308.8 1...6 84.396.4 5.6 449.534. 3.1 1.6 5.. 2....8 33.0 20.399.. 7..1 671...4 239..9 29..594.5 208..5 375.....1 16...7 54...9 907.1 38..784..5 1..4 1.8 162..1 382..2 58....4 17.0 400.4 1965 ....1 979.6 90....102..048..131..9 1.5 29.4 548.0 134.......6 2..6 170.6 1..1 III .2 890....8 5..0 9.2 1... 929.6 .....284.9 24.9 1...201.9 449..5 Farm 11.5 176.... 8.2 5.......... 6...800...036.1 261.731.046.2 204.2 949.....0 84.1 524.7 960.3 19.8 1977 .2 188.....1 IV .150.288.708..177.6 II ..3 412..9 55....0 6..2 1....6 109.358..3 1989 . 12.....1 1..6 1..099.7 434..830.452........619... quarterly data at seasonally adjusted annual rates] Proprietors’ income with inventory valuation and capital consumption adjustments Compensation of employees Wage and salary accruals Year or quarter National income Total Total 1963 ..1 52....5 8.1 1.647...0 5..9 344.0 161..477...053.2 8.8 23.9 929.3 87.

..5 1.1 –10.1 102..819...8 68.....035..6 109..1 112..2 36.227...8 521..6 Busi.859.9 328.. 2009: I .2 623....7 –60..1 33....0 181..087.7 40.4 ..2 17..5 382.571.4 35..285...6 –14.... 1997 ....5 51.4 9.3 821..........1 –2.4 794....3 173..1 106......454...7 –32.0 1..6 60.4 –.8 –72.....8 1. 1988 . 1978 .5 1......5 29...8 730...6 13.9 141.... III .7 –4.2 7...2 1....5 74..1 21..9 –155.6 –15...0 21.1 –45...1 548.761.4 –72..1 3.4 49...4 1.9 –1...0 54..025..8 –16..1 7....8 51...9 Source: Department of Commerce (Bureau of Economic Analysis).2 1......050.. 2009 ......724.....7 389.3 1..4 88..miscel..9 –10.2 –5...501.6 1. III ...9 55........adjusttributed ment profits Profits after tax Total 62.6 194.7 772....5 –1.4 60..0 –13.8 35.. 1982 ..5 30.....6 97..3 1.9 ..7 39..262.5 –15....1 341...9 161.7 720...9 –7..017...9 52... 1989 . II .8 222....8 892.0 193...059.2 784.195.5 265..5 –67.... 1998 .3 192. 1968 .....9 9...6 362...9 20.8 843....0 –6.6 82..4 24..825...4 107..1 46....6 85.8 110...8 80.691.8 81.1 15.......5 1.654.9 135......6 543..6 .4 138..0 457..3 –4...1 19. 1991 ..6 22..0 50.....1 422.890..1 14.9 367.4 268...3 82....3 509..1 285...1 –19.......9 84.6 4..456.1 234.1 367.....0 1......1 444.3 1.........0 73.9 684.5 398..8 58...5 122....5 . 2011 p .3 .2 18.8 83. 1986 .7 145.3 94...3 123.....3 409......0 136..1 13...6 420..9 1.5 –16..2 166....7 –15.1 111.4 76.455...2 4.6 3.7 17.510.4 1..4 474.5 1...3 21..2 1..3 425.0 1...5 780.. 1976 .9 1.0 1..5 1. 1980 ...7 835...0 652....6 30.....229..0 –176.0 138.7 180..833.9 158.4 662.....3 272..3 21.1 57..5 90.8 –2.4 219....6 666..4 14....4 712....4 1.6 240...4 1....5 4.7 1...7 782............3 4.5 399.2 2..8 1..4 45..........4 1.......2 –12....6 202..183..5 87.1 1.046.1 56..2 418...5 8....7 136..... 1993 ..4 344....8 308.5 4.2 1..0 109..7 135.....742.5 1.5 101. 1996 .5 3...640.9 133...6 1.....2 54.......3 114..5 –4..343.6 5....4 201.......011..6 332....3 7..3 75..4 1.5 210.9 30.5 27..0 50...4 765.2 780. 2005 ..315..8 660.9 1....1 9..5 –....6 9.8 1..0 141.9 50..6 479..054..6 425....4 –47..5 132.3 205.producsump....1 1..9 180..1 36..5 673....9 334..1 246.... 1992 ..6 591.... 1974 ..5 –30.......403....4 930..5 74.6 248..7 1. 2002 .3 60...723..2 –1.7 64.......0 86..6 –14..2 97..5 69.1 323.475..2 69..8 426..4 –63..8 137...2 1.....609.438.1 257.0 599.4 556.ments imports ment 16...2 –15.3 434..3 670..0 348.0 57.1 84..0 1..7 1..9 34.4 671....0 115..7 374.....1 461.0 103.. 1987 ....652....328.....188..7 519.6 1.2 3..5 32....2 27.0 101.8 318.2 61.....1 90.784.8 474.6 ......1 28..0 –16..9 309..470.... 2010 ..6 33........3 1..6 264.....5 –13..0 29.....8 46......3 737.9 1...8 53...244.8 63.5 258. 2003 ...7 331..5 55..1 660....4 232.0 132. 1994 ...9 59.9 91.. IV p ..1 86. IV .0 147..8 –16.1 61. 1977 .1 8....8 466....937..1 49....038.3 50.408..5 27..4 584.8 11..0 1...7 33.7 525.525.9 51..... 68...4 41......1 483..4 56.3 14... ....830................1 14. .1 6......785..7 –14.3 80.0 –14.2 –12..844.5 169.....8 557...3 1.2 1...7 140..6 115..4 27.2 19..1 4.6 64.....3 –52..1 244.360.5 29.1 39.0 –..7 –3.7 63.8 1..6 93...5 243.7 814.. 2007 ..0 165. 1984 .3 1....2 –11.. 1963–2011—Continued [Billions of dollars.1 –18..6 370.9 83..0 224.049...0 63.6 66...7 134.8 57.7 628...6 4.....3 803.780....9 35..9 656..8 1..7 –2.5 374..0 137...4 56.8 29....608.7 –4...0 80...3 208.3 235....8 15....415.000.........6 971.3 63.. 1969 .....6 776..3 85......414..0 97.412.4 158..7 –86..3 1..4 306......8 1....3 289......1 –16.2 557.....Current ness surplus current of transfer governpayment ments enter(net) prises 2.8 806.. 1...7 170.1 1.1 569.2 70.7 39..4 424.456.3 4....3 116...2 8......2 387.1 133.....6 550.0 684.857..9 179.101..2 67..5 41..6 135..........9 27.6 135..8 762.6 20..5 24.0 3........7 259..5 404...0 1...........3 159......9 117.....9 45...3 1...2 77.4 266.....7 325..2 124.0 211.2 28.7 8...4 184......8 85.7 108.3 1.. 1981 .3 1..6 9.800.9 52..0 24.6 727...5 92.333..5 600.8 863.....7 1.2 412..3 271.3 1.9 118. .5 107. 1970 ....3 671..4 1...8 232.. 1964 .4 445.0 –90..4 539....2 42.0 129...4 243.3 65.9 1..248.7 1.....8 36..7 69..3 –14....4 57.4 40. II ..0 743.7 73.9 55..... 1972 .4 83.1 760.027..3 327.9 20. 2008 ...1 69.9 –6...1 53.4 109..4 503.6 –74.5 411...4 –22....0 903..1 366.0 27.5 –110..... 106..9 580....0 ..2 5...6 1..1 15..0 87.4 19..0 883.3 573.738....2 1....7 385.3 868...8 52..6 1.5 15.7 377. 1983 ...1 1.1 81....2 –2.4 347.8 –2... National Income or Expenditure | 351 .4 25.7 6.020.......7 8.5 5.7 84..4 411...0 21..0 28. .7 –2..6 –84......4 704.9 –16.7 41.208..6 535...9 8.....4 856..5 102.0 182. 2001 ...8 611.0 188..1 .0 –20......397..1 1..8 1.1 1.6 835..1 191.7 32....2 127.6 –78....3 146..9 135....3 1..Table B–28.7 556. 1966 ...3 471. IV .3 323.....040..8 –28....1 545. 1990 .031..5 0...7 65..7 473.6 7.1 1...0 351.6 153..3 819.9 738.9 411. . 2004 .3 –83.. 2010: I ...5 –69.4 1.....1 .4 225..8 815.. .1 923.5 8.1 1...4 –7..2 23.....9 352..5 10....5 430.5 3..9 4...9 3....5 ..6 254.0 1.4 136.7 231.8 1.8 337......2 31.292.5 1..7 170.8 –15.2 .2 731..2 61..3 4..7 –.7 9......100......9 138..2 872..2 40......2 2.0 75..4 33.3 90.8 95...3 205.laneous tion and tion payadjust..3 51..8 644....7 211..7 –38..6 257..5 134.9 6..4 56..0 145..337..5 253....4 506.. 62.543..5 9.0 171..5 14.. Profits before tax Taxes on corporate income Inventory valuation Undis........5 171...7 301..4 212.876..3 161..0 –44.1 1........4 124..2 793... 1975 ..359..0 563...0 766..9 47.0 1....7 762.4 223.5 498...6 –4.....0 59......5 –23.5 76....3 –15..8 218...5 124....5 509....4 1..3 –16.9 –116...867...8 –38.6 52.7 1...1 656.......4 54.3 1.9 1.0 44..0 –34..6 Less: Subsidies 2...4 192.8 91..7 203.2 45.....2 58..1 60.. Net dividends Net interest Taxes on Capital and con....... 1999 ..0 589..7 –153....5 774.8 4.. 1995 ....1 51.0 1.0 75......9 1.......1 507.9 38.2 716.1 –5.1 253..2 358...4 457.....5 86.9 498.1 115....1 97........5 314..4 39....6 708..7 875.5 355..6 191.3 29....8 26.8 85.6 1..4 596.. 2000 ...3 101.3 643......5 1.. 1965 ..3 801.7 134.3 722..5 123...5 367...........1 9.6 1..163.4 1.9 181..8 563.. 100..2 92.....8 39.7 106. National income by type of income...0 62...1 246..2 40.....7 –74.3 1..9 –5...7 729.2 65.2 297...4 100.822.6 ......2 1.5 –16.6 1.389..8 117.9 76.....3 –3.4 –16.2 550..5 6.5 653.8 812..0 88.....098.4 148.246..2 –1.7 272..8 91.8 13..5 99.1 –4..6 –40..209.0 1..1 –4. 1979 ....8 24...6 52.6 8...9 1..362.....1 7..8 430....5 –3.3 481.5 146... II ..3 1..7 57.3 65....4 807.8 1..9 129.......9 51.9 135....970..6 639..6 525..4 1..1 407.9 1.7 1.8 4.1 8.....0 20..5 740..3 373..1 620..9 248..4 ..0 306...4 198..1 26..... 2006 ....3 1.8 –11.2 1..4 57..... 1985 .175.6 92...912.. IV .9 425....... 1.2 22.....0 51.9 264..008...9 –97...7 1..7 32...349. 1967 ..4 –131..2 986..6 8.1 43..2 801.0 586....552... 2008: I .7 564.0 1..0 7.0 34.0 .3 544.0 79..6 39.1 25..7 3... II .5 727..2 1....9 80.....9 –3.1 200..3 496.4 159.. 1.3 390.3 736.2 543..0 60...6 870...5 82.050...6 78....812.4 680.6 –94.8 245.9 ......1 –6....2 30..1 130.1 878.3 51.....545.099..2 –180..5 115.4 .2 225.065.4 1....4 –14...1 137.7 95..8 312...0 1.9 145.797.0 6. III .1 –1...5 1.1 1..8 4......1 398.6 –24....6 22...... 1973 .5 884..4 399.9 40.1 –39.4 81.6 5.... III ..6 83...5 34.8 659...2 –3....1 226..7 133.6 515...1 68.6 –14.8 1...1 4.7 235.....7 3....3 217.4 120.0 85.2 1.6 1....6 434..7 1.3 –4.465...1 32..104...... 1971 ....6 755.7 54..1 33...9 234...1 405.6 –5..9 –15.... quarterly data at seasonally adjusted annual rates] Corporate profits with inventory valuation and capital consumption adjustments Profits with inventory valuation adjustment and without capital consumption adjustment Year or quarter Profits Total Total 1963 .359.4 504....6 286..6 1..6 1..3 535..865..2 977.9 263.3 371.877...3 –42.3 35.....2 33.5 786..3 14..047.. 2011: I ....4 404.....8 244...5 96.....7 364..

417... 1991 .........3 1..325.4 11.. 1990 .6 5....7 2...452...9 470.. 1976 ....5 2..9 5..6 114....5 184..5 325..0 2. 1996 ...2 3...0 134..8 47....288.2 6...3 551.5 49. 1994 ..4 239..177.9 33.533.8 51.766...1 352...........619.2 370.137..9 1....7 496.073..0 548..106.844.6 365.6 468...2 2........5 472.0 1.5 1.2 12.7 6.048...4 See next page for continuation of table.033.518..230.179...9 4.5 82...0 22.7 206.8 61...7 43.7 319......191..139.9 21.5 1...401..9 Total 30. 1977 .0 7...8 32..2 7..3 3....9 496.3 79.4 8. 2010 ....1 980.790..5 375...7 1..1 992..1 397.060..438..425.8 2..046..3 308.5 1.0 1.1 7..6 584...608. 1970 .073...2 62.5 243....0 1.6 1.7 265..961...133....8 814.3 232..583.1 9.6 1.0 11.5 78.3 2. 1999 ....4 36.472....6 115..2 1.726.....1 329..8 6..373.0 274.6 105. II ...9 6.......578..3 345.8 817.8 467...4 6....6 459..5 1..701.3 2.8 4..7 73.1 225.....1 11. 2002 ...3 325.......9 6.5 Farm 11.046. 1963–2011 [Billions of dollars..9 78..8 321.6 4.979.........0 9.5 275.. 2011 p ..8 648....6 307.440..6 20..5 29.5 2....5 1...7 960.6 71...071.178.4 1.3 5.......1 671...952.022....181.7 237..5 219...0 13. 1975 .5 20.5 49..3 458.057.071...6 .8 840.1 1..245...3 952.4 17.937.709..7 105..4 3.973...7 39....5 492.6 1.7 399..538..4 12...6 1.9 22...9 673.4 845.1 452.6 88.0 5....5 446.. 1992 .5 64.6 6.127....3 4...412....0 1..8 289.5 499.6 2.......2 1.5 118.180.9 406.2 334... 1986 .874..550. 1964 .6 874..9 344....8 8....8 6..6 23....190...7 5...052..4 32.8 161..582....2 64.6 278.9 20..1 264.0 589..092.112.2 77. III ....059...0 366..6 6.814.5 59......9 1.0 1..063.196..2 733... 1966 ..1 1...9 1.0 611..042... 1974 ....408.250.8 1.5 208.0 64.4 178..036.9 60.1 7.113..3 2..5 6.334....0 12...525.573.1 1. 1971 .107.056... 1967 .......1 1..095...0 22..025.099.7 1..0 1.3 725.2 1.2 323....7 2..2 62.3 67.696.1 274.2 1..7 5.0 1.2 595...0 8. 1978 ..4 1..6 1.8 1. 2006 .1 1. 2009: I .4 408. IV .6 6..7 7...8 2.705. 1968 ..3 6.265.1 349..6 28..4 86..0 2.497..5 603. 1998 ..3 1.124.....073..4 1..3 555....4 514..852.7 1.8 1.9 4..103.2 1....810...8 18..0 937...1 760.....2 3..5 313.....0 6.0 5...2 126..7 476.3 787..2 871.3 6..1 711.3 12.6 1........708......606....225.059..591.......425.110...2 27.4 535......997.0 20.8 363...1 1.0 147....8 Rental income of persons with capital consumption adjustment 19.7 4.6 12...4 4.2 1..7 1...6 714..6 1.......5 7..2 215....1 888.8 771. III ..2 3.....9 55.9 12.373.6 137..4 8..3 479.253.0 1..9 1.8 894....... III ..8 39. 2001 .060.6 903.268..073...6 4..2 308..4 32.127.contributions for for employee tions pension government and social insurance insurance funds 18.. 2004 .....7 718.....070.5 1.6 2...0 35..6 900...418...222....2 8.7 354.531..1 19.... 1969 .8 385.....2 58.4 1...016..439.8 23.1 67.4 1.4 19...172....399.....340...4 214..9 245.3 6.112...052..0 481..7 46....2 42...4 8.057.160.1 458.2 455..4 1.029.1 16..4 102.1 188.228.1 427.1 66....9 7.2 926.3 3. 1972 ..1 228.6 159.....144..979.960..1 1.111......587..8 272...9 1...0 3..5 1.2 889...6 37...2 2...8 34.1 747...7 1.938.0 97.1 1.9 20.....4 615..487.453.1 5..530..188....5 5..074.8 307..8 991..0 609..6 30.8 638.8 5....862.0 20..222.359....083. 1965 ..0 4......387.271.0 8.0 1...7 470......1 1.924..836..5 2.9 6.480..1 52...5 1.2 3.8 28.0 19..6 305.335. 1993 .6 502.7 8..8 26..874..7 1.5 191..557..2 8..5 28.9 22.5 35.. 2000 ..367... 2008 .9 6...511.130.513.6 7....8 701.301.352..4 494...3 1...7 890.......2 347.6 2...781..8 791...4 5...1 1.4 238..280.6 28..115.9 293......6 84...231...8 190.2 345..9 449......0 842..002....7 1.7 204.......4 7..3 577..8 119.3 12.2 1.6 449.......5 41....827...550.2 6.2 404..256..7 475...531.1 1......1 23..026.0 32..095.104....8 772..9 5.4 185.035..2 1..7 157...189.2 560.3 22.........1 623.0 3...268....7 2....4 5..000.4 38....6 1.2 11.454..7 778..4 7...1 923.1 1....068.8 1.087...3 457...Table B–29..9 11.090.4 49....7 54..1 23..6 170..5 1...097........8 58.7 1.....3 6.....7 459.050.7 445...1 979.8 400..1 902.6 132. 1997 ...7 222...9 1....2 40.069..1 9.......804..0 113..9 29........6 51.1 11...0 1.3 159......5 36..027..3 4..4 792..039..4 218..264..801. 1984 ..5 6.910..4 1.964. 352 | Supplements to wages and salaries Appendix B Total Private industries 314..0 318.7 5..9 35.1 358...9 3.7 7.2 52.131.9 103..7 1..9 350.883.....7 231..8 299. IV .4 22.5 119.6 475.3 37..3 87.678......0 495.954.7 4..616.9 68.7 8.6 1.1 5....3 888.9 491.1 173..5 6...6 3...1 262..1 32.9 1.0 1....5 96. received Wage and salary disbursements Year or quarter Personal income Total 1963 .2 474.1 Government 60.. 1995 .3 3.0 130....7 628...3 65.5 1.912.5 3..9 218...6 408.1 750.023.5 629....2 1..1 471.7 254.4 1.190.280.7 1..2 1.....0 583.8 572.9 941..8 961.6 545.522..7 42..930.2 4.2 11.6 294.6 44....6 1.1 261..5 4..6 1...7 998...6 1.113.1 142..8 2.496...1 239...600.......1 516.... 2008: I .1 367.6 161..8 162.101...7 25.5 38..6 174..062..0 984.4 44..560.4 Employer Employer contribu...4 457.5 870..6 113.3 428..2 10...3 332.102..... 2011: I ..081.1 5..071..191....1 2.6 3.270.....6 12.......6 994....1 524..5 212....475..8 1....550....6 617.3 60.188. 2010: I ..3 46..8 74... 2009 .6 193..8 12.108..9 1.4 63.9 26..617..9 6..0 1..0 1.. 2007 ....5 1. Sources of personal income.9 907...971.....621.2 12......3 46.498.982.....2 1.0 1.2 4..2 658.567..0 473.7 1.....8 33..446. 1988 .089.5 84.2 198.137.... II .7 5.1 565.3 930.9 873..9 13.6 117.3 429... 2003 ..7 5.647...0 5..3 143...7 3..1 147.8 1...1 2..5 981.5 1...1 22.876...219.103... II ...0 1.7 949.6 931.0 2...5 18.4 86..8 6.3 1.188.1 1.7 2...485..2 1.559.....399..0 13. IV .5 1.175.....2 5.7 65.6 1..2 5..5 22... 1973 .......460..9 28..9 929.3 12.242.641....7 1.....3 19..151..8 354.2 1.046.0 176.846.4 5..3 838..2 16.....9 2.6 960...7 779.....6 186........415...7 899.021... 1981 .6 1....668.3 948... IV p .9 342.4 7.7 821..554..5 143.4 501.120.....1 38.9 139...2 146..980.033.........378....4 162..1 456......968.168.9 669....5 1.3 4....2 358.251..5 746......1 913.332.2 495..0 8.5 281...9 24.9 1.8 44...4 8.031.5 442.110.819..9 1.6 148..1 11..2 188..557.4 1. 2005 .987.7 1...2 39.460...076.6 5..096..8 379...5 1.......421.9 21.6 13. III .326.5 215.9 69.217.7 12.....0 167...2 125..4 31.9 55.5 1........4 3.0 23.6 1..0 161.1 38.3 1.9 166..8 1...602....741..076.4 6.2 40...1 519.....2 687. 1982 .036.. 1979 . 1980 .1 382..226..5 1....7 74....7 19..608..406.5 41.0 518...3 1.0 396...3 184.....6 710.5 1...846.2 12.2 204...7 96.3 6........5 429..6 45.3 5...5 58.0 11..788.6 13....9 1..5 181.5 514...347..119.8 3..809....632.6 485...952.048..3 261. 1983 .........474.0 472.5 36.594.9 374....8 202.735.4 548.8 5.113......0 638..708.084...8 5.5 181.053..189...8 469..7 1.8 351..0 17...2 5...337.1 71.2 69.955..8 8.0 648.3 890.......092.....0 254.7 434..568.6 658..... 1985 .9 1..9 154..5 55.9 337.477.3 59.301..5 5.....2 4.7 12...3 585.6 333.0 4.5 297..4 7.1 811.529.6 11.1 1....102..7 Total 56..2 146.1 1...0 339.944.7 12..6 378. quarterly data at seasonally adjusted annual rates] Proprietors’ income with inventory valuation and capital consumption adjustments Compensation of employees.919.7 12.200.636.789..0 6..2 23.571.406...8 3.6 12.025.282.7 1.7 233.2 20.577....203..519.....2 6.833. II .1 1.....7 Nonfarm 45. 479.1 984......4 176..5 2.0 41.....6 109..5 5.204........4 61.111..327.0 400..6 5..1 1.113.......5 5.8 708.....1 417.089..3 2..8 12.2 423. 1989 .036.1 246...6 90.......5 12...7 1.....7 1.3 412.....4 495.647.5 285..472. 1987 ...175......5 8.....5 1..3 9.2 5..278..6 5.348.534..496..6 1.3 7.0 84.3 414..0 29.563...387.0 1.498...6 20..1 6..

..2 20.4 31...899..242..9 994.2 2...9 521..5 987..0 217.0 112...4 508.0 257.9 408............790. 1981 . 1967 . 1982 .8 53....9 1....4 25....3 18.....5 1...3 557..0 477.8 335..7 1.382.165.2 8.297..057...6 59...265.1 1.9 74..0 15.1 15..... IV .. business domestic (net) 1.5 8. III .004.8 703..5 1..1 1.4 38..5 554..1 472...6 1...6 577.1 2........829.9 158..9 304... 1987 . 1972 .296.4 2... IV ..8 168.1 199.. 2007 .0 2....2 60.2 729...8 2.184...4 94.9 451.... 1965 ..6 133..2 36.2 117...4 51...4 835.4 40..5 1.1 399.5 397...8 8..0 575.9 281......7 117.707..4 813.2 2......9 519..7 44.............6 128.....0 71......3 4.7 661. 16..9 16.872.8 951...9 827...2 342...7 751...2 327.0 71.0 73... 1996 ..1 424.....5 101........1 860..0 73.8 919....1 3....2 356.6 101.3 511..0 99.7 208.5 2....9 208........9 130..5 304...8 108..331...2 129.1 177...0 1....2 59.8 130. 1983 ..6 183.3 705.5 597.. 1980 ....7 140..8 113...398..3 90.....6 83...9 1..... 1991 ..6 688....7 61...252......6 170.0 1...0 109.3 1.....9 37.5 1..8 39.....6 77.6 97...2 2.........2 698...5 369...5 159.3 38.. quarterly data at seasonally adjusted annual rates] Personal income receipts on assets Personal current transfer receipts Government social benefits to persons Year or quarter Total 1963 ..4 85...5 96....7 512.2 751....3 555.5 917.... .5 385.9 380..4 387..7 400.4 432.9 962.9 2.9 800..2 25.2 710....7 21.1 93..9 86.6 427.. 2009 ...0 985...2 39......0 1.. 2 Includes old-age...3 423.....4 491...2 36..9 2..4 135......9 535..724. 1992 ..9 163..1 340.3 53.5 425...301.0 667..2 1......2 976.7 153.5 20....6 21.6 31.. II .2 38. 1971 .8 6.707.. III ....2 977..3 910..2 1 Includes Veterans’ benefits..194...307...9 783.4 572..7 426..2 209...2 129.2 89..003...146...341.0 44.3 265..083...8 920......4 2..4 6.....9 1.5 Less: Contributions Other for current governtransfer ment receipts...3 234..4 921.1 4.6 342..6 988.....1 385..5 276... 2000 ...7 36...9 376.2 250.3 2. II ....4 39.3 34..4 598.3 189..6 227.129.5 911.....8 174.8 416.5 318.1 2........2 164..5 36.636.3 22.6 16...3 452.108.3 667...3 101.1 418..0 2.0 26.269........508.1 203..6 147....1 16.... IV ....9 53. 2011: I .992..7 792..8 588.4 31...4 327..2 18.9 2.....205... survivors..2 2...5 1..9 25....7 10..316........7 16...2 43.7 349..3 1.6 184.7 378..0 467...8 986.8 94.687...131..3 152. 2005 ...2 694...7 421..2 987.1 6.0 662..605.7 153.4 23..3 43.2 33.6 485.5 160....3 517......5 27.6 909...9 924.........482..6 594.3 717..1 312..6 39.....8 826.1 270. 2001 ...4 303..9 69..8 128...4 10.....4 57.5 976.802..1 547....6 201.7 1..4 739..2 624...4 1......2 84....1 13..0 26.3 74..6 12.1 2.9 8.5 389..7 22.2 22.188..2 205......4 47.2 1....4 753..6 138..246......7 300. 2010 .0 874..0 966......420..6 43.9 173.... IV p .6 8.798. 1970 ...4 21.6 13.2 791..2 195.1 587...1 127.7 2.1 361.8 975...4 35..2 24...8 928....4 9..9 33..8 21.1 242.718.4 46.........336...2 17.....8 226.....4 219.......3 39..2 518.......2 75............5 786........9 436.9 1..6 440....9 138.......4 30..2 38...1 430...7 921..005.4 603...3 39.6 7.5 1.789...7 152.... 47.....5 18.... 1964 ...1 675.... 1989 ..2 23.. III ..197.8 33.4 318.127...1 286... 1984 . 1993 ..0 1......2 297...9 889.. 1963–2011—Continued [Billions of dollars.4 878.......9 144...835..721..9 464.0 1...328.4 405...7 181.3 113. 1998 .4 434.2 65.2 901..........9 264...743.....7 50...... 1990 ..8 717.3 7.281... 1985 .3 20.2 1.4 608...4 602...6 73..9 987..... II ...9 1......9 984.408..4 323... 2008: I ..1 369.8 555.0 56.4 383..0 37...794.....7 338.5 14...341..9 784....7 146.6 206..2 22.289.9 498..0 .6 1..0 64..7 2.......5 994.1 1...1 2.2 50..6 44......3 170.2 26. 1975 .3 410..2 532....1 712.....Table B–29.3 2.... 1999 .360.2 2.9 21...5 1.0 169..2 299.4 722.1 69.1 37..7 20...0 194.1 118..8 274.9 2..6 66....6 11...9 1.015.4 162......7 22...1 690.6 386............7 39.5 51.....8 58..6 401.9 112..5 45....7 2.0 1.4 111..0 1.......8 307....4 13.7 16...8 1.2 149.040..2 929.7 1..8 429.8 12..6 505.251.4 39..7 24.....1 712.1 97....2 .4 331..9 19...4 716..129..9 437.777..3 187..6 75.6 1.....5 162.936.7 984.7 37.7 37....5 36.6 82..167...4 160.1 463.203..8 693.4 205..3 2.