Economic Report of the President Transmitted to the Congress

The Nation's economic accounts, presented in tables A-1 to A-5, are designed to show the major economic developments of the last 2 years, and to throw light on the process of change and adjustment within the economy. However, the accounts are more nearly like snapshots taken at intervals than like a moving picture which shows the process of change. The causal elements must be inferred from a succession of static pictures.

It is in the nature of the accounting concepts used that, for the economy as a whole, total income received and total output (or expenditure) are always equal: the sum of the components of income, such as rents, wages, profits, and interest, must equal the value of the output of goods and services. Thus, in the Nation's economic accounts, receipts and expenditures add to the same total, which is the gross national output or expenditure. It follows that if the receipts of any one sector of the economy exceed the expenditures of that sector, this will be balanced by an excess of expenditure over receipts in another sector. This balance is shown in the third column of table A-1. An alternative presentation of the balance of private and public saving and offsets to saving is shown in appendix table B-11.

So much for the static relations. If we think of the process of change, it becomes evident that, while income and expenditure for the economy as a whole are equal for any period, the expenditure of one period may differ from the income of the preceding period. This results from the fact that collectively all the economic units may wish to buy more than current output (i. e., they may be trying to spend more than their current income), thereby stimulating increases in prices, production, or both, or they may be trying to reduce spending below the level of income and output, which tends to bring prices down, to reduce production, and to cause unintended. inventory accumulation. Only by rare coincidence will the aggregates of countless individual, business, and government decisions to spend or save match up so that the desire to save by some is exactly counterbalanced by plans to spend more than income by others. When this does happen, the economy remains stabilized at a given level of output and prices. When it does not happen, forces will be set in motion which operate to change either the physical volume of activity, or the price level, or both. It follows that, if there is to be steady expansion of the economy at stable prices, total spending in each succeeding period must rise somewhat above the income of the preceding period.

The economic forces and developments that were discussed in Chapter I of this Review are reflected in the national account figures presented in the

tables of this appendix. Accordingly, no statement of these forces and developments is included here.

merce.

The estimates included in the Nation's economic accounts are all taken from the national income and product statistics of the Department of ComThe National Income Supplement to the Survey of Current Business, 1951, has complete statistics from 1929 to 1950, as well as much explanatory material. Revised estimates for 1949-51 can be found in the Survey of Current Business, July 1952. Many of these estimates are reproduced in tables in Appendix B of this Review. Some notes on the four accounts contained in the accompanying tables follow:

Consumer account

The consumer account, table A-2, summarizes the more detailed statistics on personal income and consumption contained in appendix tables B-4, B-7, and B-9. It should be noted that, whereas personal income includes the income of unincorporated businesses and farms, only expenditures for consumption purposes are included in this account. Investments of both corporate and noncorporate businesses are included in the business account. Residential construction, whether for owner-occupancy or for rental purposes, is also included with business investment, while the actual or imputed rent of dwellings is included in consumer expenditure. Gifts to residents of foreign countries are also part of consumer expenditure.

Business account

In the business account, table A-3, receipts of business include the undistributed profits of corporations after adjustment for inventory valuation, plus the capital consumption allowances of both corporate and noncorporate enterprises and institutions, and depreciation on residences. Depreciation allowances must be added to receipts since investment is on a gross basis, that is, before deduction for depreciation. As mentioned above, business investment includes additions to plant and equipment and inventories of both corporate and noncorporate enterprises, as well as residential construction for owner-occupancy. Additional information relating to business is contained in appendix tables B-5, B-20, B-21, B-34, and B-39.

International account

Net foreign investment, table A-4, represents the excess of United States current receipts over current payments arising from transactions in goods and services (including investment income) and unilateral transfers such as private remittances or Government grants. Expenditures for these unilateral transfers are included in consumer expenditures and Government expenditures for goods and services, and exports which arise from them are included in the current receipts component of net foreign investment. Consequently, the payments involved in the transfers themselves must be included in the current payment component of net foreign investment in order to avoid double counting. (See also appendix tables B-40 through B-46.)

Government account

In table A-5, government receipts and expenditures are shown on an income and product account basis, rather than on either a cash or a conventional budget basis, so as to be consistent with the receipts and expenditure accounts of the other sectors and with the gross national product total. Government transfer payments, such as social security and veterans' benefits, and interest charges represent income to the recipients, but are not included in the gross national product. Therefore, these payments are subtracted from both receipts and expenditures.

The income and product accounts of the government are on a consolidated basis, just as the cash accounts are, but they depart from the latter because of the timing of the items included in each and because of conceptual differences. (See appendix table B-33 for government cash receipts from and payments to the public.) The income and product accounts of the government are designed to be in accord with the accrual records maintained by private business. Thus, business taxes, especially those on corporate profits, are recorded on an accrual rather than a collections basis, and government expenditures for goods are corrected for the lag between deliveries and payments therefor. All capital transactions, such as receipts from the sale of government property and changes in loans and investments of government credit agencies, are excluded from the income and product accounts although such transactions are included in both the cash and conventional budgets. A reconciliation of Federal Government receipts and expenditures as reported in the Nation's economic accounts with receipts and expenditures in the conventional administrative budget and consolidated cash statements is presented in tables A-6 and A-7. For a description of the differences between the conventional budget and the cash statements, see Special Analysis A, the Budget of the United States Government for the Fiscal Year Ending June 30, 1954.

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