increased at a seasonally adjusted annual rate of 1.9 percent, while spendable weekly earnings increased at a rate of 1.3 percent. In the 7-month period from August 1971 to March 1972, gross weekly earnings have increased in constant dollars at a seasonally adjusted annual rate of 4.1 percent, while spendable weekly earnings have increased at a very substantial 5.9 percent. As these figures show, prices have not been permitted to rocket upward while wages are held down. It is wages which are rising, while prices are being stabilized. Critics of the program often call for more rigid controls to prevent soaring profits and profit margins. This has been heard so often, especially during this election year, that some people take for granted that profits are "too high". That many people can be misled is revealed by surveys, which show, for example, that the average person believes corporations net 28 percent after taxes, whereas the actual figure is close to 4 percent. The danger, of course, is that public opinion generally determines policy decisions, and, if public opinion is misled, policy decisions are likely to be wrong.

Between 1966 and 1971, total disposable personal income in this country rose from $511 to $741 billion, up 45 percent, while corporate profits went from $49.9 billion in 1966 to $47.6 billion in 1971, down 4.6 percent. Total 1972 disposable personal income, if the first quarter annual rate continues, will be $766 billion, while corporate profits have been estimated for the year at $50.1 billion. Examination of these figures shows that, from 1966 through 1972, personal income will have risen 50 percent, while corporate profits will be up only 0.4 percent. It is true that profits will have risen nearly $9 billion above the 1970 recession low by yearend 1972. However, in order to reach that low, profits fell nearly $9 billion while personal income continued to climb. Corporate income for 1972 appears likely to approach the same level as 6 years ago, although the inflation factor would mean that real dollar income is still down.

Corporate business cannot attract and hold capital without adequate profits. For those of us who desire a healthy American economy, the recent record on profits is a disturbing one. We must be concerned with maintaining a healthy corporate climate, because that means jobs for people and tax revenues for the Government which are necessary to provide public services. Therefore, there should be more concern about raising profits from the current low levels than over "clamping down on excess profits"-to use the phrase employed by some who, for political purposes, seek to mislead their listeners.

IV. EMPLOYMENT AND UNEMPLOYMENT

Within the last year, the number of jobholders has increased by 2.2 million, with most of this increase taking place since last summer. Obviously, this is not an indication of a weak economy, although an unemployment rate which remains above our goal is a matter for concern. As we suggested in our views in the 1972 Joint Economic Committee Annual Report, relative stability in the unemployment rate in the face of steady economic growth is the result of several factors, including the attraction into the labor force of more people as the economy strengthens and job opportunities become more attractive, coupled with the release of hundreds of thousands from the Armed Forces and defense industries. While we do not feel it

necessary to restate our earlier views, we should make clear our confidence that an economy which has provided more than 2 million new jobs within the past year is strong enough to reduce our present unemployment rate substantially.

V. 1972 ECONOMIC PERFORMANCE

How has the economy performed so far in 1972? According to preliminary estimates, on a seasonally adjusted basis, the Gross National Product rose in the first quarter of 1972 at an annual rate of 5.3 per cent, in real dollar terms. This is within the range which would enable us to achieve an average figure of 6 percent for1972 if the economy continues to accelerate. Additionally, the preliminary GNP figures are subject to substantial revision. Thus, the inflationary part of the GNP growth in the first quarter may well be smaller than currently esti mated, while the real growth may indeed be substantially above the 5.3 percent contained in preliminary estimates. The direction of the economy may perhaps best be ascertained by examining the recent performance of some of our principal economic indicators.

Leading Indicators

During March, the index of leading economic indicators, which generally is used to anticipate shifts in the economy, continued the sharp upward trend of the last 6 months. The March rise of 0.9 percent to 136.1 percent of the 1967 average followed a February increase of 0.7 percent. During the first 3 months of this year, the index rose 2.9 percent, following a 2.8 percent rise in the last 3 months of 1971. During the last 6 months the total rise of 5.7 percent comes out to almost 1 percent a month. This strong rise over a fairly extended period is good evidence that our economy is embarked upon the sustained expansion needed to reduce unemployment significantly.

Industrial Production

Business activity is increasing rapidly. At the end of April the index of industrial production had risen for the eighth consecutive month. From March to April, the index rose 1 percent to a seasonally adjusted 110.9 percent of the 1967 average. This monthly increase. which is equal to a very substantial 12 percent annual rate of increase. is the largest month-to-month rise since December, 1970, when the economy was rebounding from the General Motors strike. From August 1971, when the Economic Stabilization Program began. through April 1972, the index rose from 105.3 to 110.9, an annual rate of increase of almost 8 percent.

Construction Awards and Expenditures

The rate of contracting for new construction is also encouraging. According to the FW-Dodge division of McGraw-Hill Information Systems Co., construction contracting in March was 15 percent above the level a year earlier, raising first quarter 1972 to 20 percent above the first quarter 1971 level. For the entire first quarter, construction awards totaled $19.06 billion, compared to $15.93 billion in 1971. FW-Dodge has estimated that total construction contracting for all of 1972 will reach $85 billion, up from 1971's $79.64 billion. The latest estimate is about $2 billion higher than the initial 1972 forecast made

last October and puts the 1972 gain over 1971 at 7 percent, almost double last October's 4 percent.

New construction expenditures are also rising strongly. The seasonally adjusted annual rate of new construction expenditure of $123.8 billion in March is 20.2 percent above the seasonally adjusted rate of $103 billion a year earlier, and 2.1 percent above February 1972's rate of $121.2 billion, or, on an annual basis, 25.7 percent above the previous month. Private residential expenditures, particularly, have been increasing strongly. In the 3-month period ending in March 1972, private residential expenditures were 10 and 41 percent above the spending rates in the 3-month periods ending in December and March 1971, respectively.

Housing

The basis for the strong private residential expenditures is apparent on examination of new housing starts in recent months. During the first four months of this year, new housing starts took place at an annual rate of 2.436 million units, which was 11 percent above the last 4 months of 1971. The exceptional strength of this performance is apparent when it is compared against the projection for total 1972 private starts made by the Council of Economic Advisers in January. The Council then projected total new starts for the year at 2.2 million, which would have been a good performance. The performance to date is almost 11 percent above this original projection. Continued housing activity at this high level would of course have exceptionally favorable effects on the rest of the economy and would make great contributions toward accelerating our rate of economic expansion.

Business Capital Investment

These and other favorable economic developments in the last several months have had a very positive effect on business confidence in the economy. This increase in confidence is reflected in the findings of a recent survey by McGraw-Hill Publications Co., regarding business plans for spending on new plant and equipment in 1972. The most recent survey indicates that businessmen are planning to spend $92.9 billion for capital improvements this year, 14 percent more than in 1971 and considerably above the increase being planned only a few months ago. The McGraw-Hill survey also indicated that planned capital investment averages $100 billion a year over the next 3 years. The 1972 spending plans, at a level 14 percent over 1971, compare very favorably with the results of the Department of CommerceSecurities and Exchange Commission survey taken in November and December 1971, which projected a spending increase of 9 percent on new plant and equipment in 1972, and the Commerce-SEC January and February 1972 survey, which indicated a 10.5-percent increase in 1972 over 1971 outlays. This continued rise in business plans for spending on new plant and equipment demonstrates rising business confidence.

Consumer Confidence and Expectations

This rising business confidence is, in our opinion, matched by increasing consumer confidence. Last month the Survey Center of the University of Michigan reported that consumer expectations regarding

what will happen to business conditions and employment during 1972 have risen substantially. The Center stated that its index of consumer sentiment now stands at 87.5, based upon a survey taken in late February, compared to 82.2 in fourth quarter 1971. This increase of more than 6 percent in one quarter is sound evidence that consumers realize that the economy is growing rapidly.

Retail Sales

This consumer confidence is reflected in several ways. In the 3-month period from February through April 1972, retail sales showed good growth, after remaining relatively stable in the 6-month period from August 1971 through January 1972. According to the Department of Commerce, adjusted total February through April sales averaged about 2 percent above the previous 3 months and 8 percent above February through April 1971. Durable goods sales in February through April were 1 percent above the level in November 1971 through January 1972, and 11 percent above the level in February through April 1971. Non-durable-goods sales were 2 percent above November 1971 through January 1972 and 6 percent above February through April 1971. Because retail sales figures can be relatively irregular from month to month, data for 3-month periods are generally necessary in order to determine the underlying trend in retail sales movements. The recent growth in the durable goods category is especially important, inasmuch as expensive discretionary items such as automobiles and household durables are easily postponed if consumers feel economic conditions to be unsettled.

Consumer Installment Credit

The month-to-month changes in consumer installment credit outstanding are also sensitive indicators of changes in consumer confidence. The most recent consumer credit figures released by the Federal Reserve Board showed that there was a record rise in March, with record extension of credit in all categories. The very important consumer installment debt category showed a climb of a seasonally adjusted $1.36 billion in March, which was well above the $966 million rise in February and higher than the previous record rise of $1.27 billion in November 1971. Of the $1.36 billion, auto credit rose an adjusted $450 million, well above February's $353 million rise. However, the sharpest gain was registered in loans for consumer goods other than automobiles. In this category outstanding consumer installment credit rose an adjusted $499 million, well above the $290 million increase in February. Total new extensions of consumer credit were a seasonally adjusted $10.99 billion, a record. These consumer installment credit rises are very significant because they not only show consumers to be confident enough to make purchases, but to be sufficiently confident to go in debt to do so. This strong growth in outstanding consumer debt has taken place throughout the period of the New Economic Policy. We believe that this demonstration of consumer confidence will provide a broad base for continued economic expansion.

VI. CONCLUSION

Based upon the evidence now available, we believe that on the whole the New Economic Policy is succeeding. Since last August, inflation, as measured by the Wholesale and Consumer Price Indexes, has been reduced to approximately two-thirds the annual rate of increase which we were experiencing in pre-August 1971. While price rises have been limited, wages have increased at a substantially higher rate than during the 6-month period immediately before the President's new program. Although, for reasons outlined above, the unemployment rate has remained relatively stable, total employment has risen rapidly since last summer, a sign of a strengthening economy. The recent performance of a number of our principal economic indicators reveals both rising economic activity and, very importantly, steadily increasing business and consumer confidence.

With the continued cooperation and support of the American people, the economic stabilization program will enable us to achieve economic growth while, at the same time, bringing about a reduction in inflation and unemployment. As we move toward these goals, the present system of controls will gradually be dismantled. We believe that this elimination of controls is essential, because permanent controls are inconsistent with the operation of our free market system.

We add but one caveat: Those in control of the Congress have the power to determine fiscal policy. Congressional action or inaction in the weeks and months ahead can make a major difference-for the better or worse-in our economy.