Special Message to the Congress: The President's Midyear Economic Report

To the Congress of the United States:

This Midyear Economic Report appears at a time when the 82nd Congress has adjourned, and when the Congress may not again be in session until January 1953. For this reason, the Report does not contain specific legislative recommendations. It is limited to a broad view of the Nation's economy, its current condition of strength, and its prospects and problems for the future.

It is highly desirable that these matters now be placed before the American people and their representatives. During the coming months, issues of economic policy will be widely discussed throughout the land.

Nobody can expect, and it would not be desirable, that everybody view these problems in the same light or propose identical solutions. The strength of our free institutions rests upon free debate and free decisions by the people.

But in these trying times, while some issues will continue to divide us, we must seek out and stress those things which hold us together.

We face a common danger in the world-the communist menace. We share common aspirations for our domestic economy--stability, justice, and advancing prosperity.

There are certain facts that we should all know and accept. These facts converge upon one inescapable conclusion: America has the economic strength, while fulfilling its domestic responsibilities, to build with other free nations the conditions for a more enduring peace. America cannot afford to relax in this effort, in the false fear that we do not have the strength to carry through.

This country, from the time of its formation, has passed successfully through many trying times. This success has not come through doubting our own ability. It has not been achieved by trying to get by with lower exertions and costs than were necessary to do the job.

Yet every day one hears some expression of opinion that our security efforts are weakening us at home, and that we must reduce them in order to save ourselves. Many who hold this view are entirely sincere. The trouble is that they have not examined all the facts. I am confident that, when they do so, they will join in the realization that danger lies in believing wrongly that we are weak. Our strength commences with knowing that we are strong--and becoming stronger.

The facts reveal beyond question that the security programs now being undertaken are not even threatening--much less depleting or impairing--the strength of our domestic economy. Despite the burden of these programs--and they are a real burden--our business system has been doing better and our people have been living better than ever before.

Our just pride in these facts should be tempered by the sobering realization that the burden of resistance to aggression is pressing very heavily against the living standards and productive opportunities of other free peoples. They are just as desirous of achieving freedom and security as we are. But the resources they can devote to building economic and military strength are much more limited than ours, because they have far less of a margin above the absolute necessities of life. Under these circumstances, the help we give them can return many times its cost in greater security for them and for us. The record of the recent years shows that this is true--and the contrast between our own economic situation and that of other free peoples shows how fallacious is any claim that we are doing more than our part.

The people of the United States have proved that they could stand up under adversity whenever the need arose. But we also draw inspiration from achievement. It speeds us forward to even greater achievement. The facts about the strength and progress of the American economy since the Korean outbreak should be made clear to all. These facts can provide the clearest guide to the actions we should take.

The presentation of these facts can also strengthen our position in the free world. Communist propaganda is founded upon the false idea that the American economy cannot maintain its strength. Even some of our friends abroad are concerned about the future of the American economy--which they regard as the bulwark of the hopes of free men everywhere. The truth about our economic situation should also be brought home to them.

THE FACTS Of OUR ECONOMIC STRENGTH

In previous Reports, I have reviewed the economic progress of the United States since the period before World War II. Comparing 1939 with the annual rate for the first half of 1952, our total output has increased by almost 90 percent. Industrial output has approximately doubled. The output of our farms, despite a declining number of farmers, has increased about one-third. Business investment in construction and equipment, measured in 1951 prices, has risen from an annual rate of 14 billion dollars to an annual rate of almost 38 billion. Civilian employment has risen from less than 46 million to an average of about 61 million for the half year just ended. The per capita income of the people, even after adjustment for price change and computed after taxes, has risen about 40 percent.

In this Report, it is even more pertinent to consider the changes in economic conditions which have taken place since two years ago, when the aggression in Korea forced us to a great expansion of our security programs. The facts since then do not reveal any impairment of our general economic strength. On the contrary, they show that the most important elements in that strength have continued to grow.

During the last two years, our total output, measured in 1951 prices, has risen from an annual rate of about 300 billion dollars in the second quarter of 1950 to almost 340 billion in the second quarter of 1952. This increase in total output has been greater than the expansion of all our security programs, which during the same period of time have risen from an annual rate of about 19 billion dollars to an annual rate of 50 billion. The net consequence of this is plain. It means that today, despite the expanded security programs, we are producing more for other purposes than we were two years ago.

Within the same period of time, opportunities for business investment have continued to grow. Private business investment in construction and equipment, also measured in 1951 prices, has risen from an annual rate of 35 billion dollars to an annual rate of about 38 billion. This very high level of business investment includes a greatly increased concentration in those areas which add to the strength of the whole economy both in peace and in war, such as steel, electric power, oil refining, and transportation.

The general conditions of civilian life have also continued to improve. The annual rate of personal incomes, after taxes, measured in 1951 prices, has risen 10.5 billion dollars since the second quarter of 1950. The annual purchase of goods and services by consumers--again in 1951 prices--has risen by 5 billion dollars. Yet, because incomes after taxes have risen more than expenditures, the annual rate of saving has increased from less than 5 percent to about 7 percent of income after taxes.

There is now a good supply of all important types of civilian goods. People are enjoying not only more of the necessities, but also more of the comforts of life. From early 1951 to early 1952, American homes were equipped with an additional 2 million washing machines, almost 2 million additional refrigerators, about 3 1/2 million additional radio receivers, and more than 4 million additional television receivers. More than a million new homes will be built this year.

In fact, there are some who now maintain that the defense program should be larger and faster. The size and pace of the defense program has been adjusted to the best available estimates of our security needs. If these needs should appear to be greater, there is ample strength in our economy to support larger and faster programs. But the controlling fact that we should all bear in mind now is this: there is no justification for wavering even a moment from the pursuit of our programs for world peace, on the ground that they are hurting us at home. Never did the facts point more clearly to the opposite conclusion.

There are some who challenge the significance of these facts. They point out that there has been a long-run decline in the value of the dollar; that the level of taxation is very high; and that the Government is running a deficit. These are important problems, and I shall refer to them again later on in this Report.

But it is a complete distortion to center attention so exclusively upon these problems as to create the impression that general economic conditions are deteriorating or that our economic strength is being undermined.

True, the long-term trend of prices has been upward since before the start of World War II, which means that the purchasing power of the dollar has declined. Nonetheless, the growth in business investment and in the people's consumption of goods and services--which I have cited above--has been growth in real terms, after adjusting for price change. Because the economy has vastly expanded the production of goods and services, the standard of living has risen, and the number of dollars in the hands of the people has increased much more rapidly than the decline in the purchasing power of a single dollar. Over the years, the Nation has achieved a more equitable distribution of goods and services and dollars among individuals and among major economic groups, although the long-term rise in prices has hurt some. Furthermore, since early 1951, the anti-inflation program and other conditions have brought about a leveling off of prices.

For these reasons, it is wrong to assert that the economy in the long run has moved down-hill, simply because prices have moved up-hill. If there were a depression, prices would fall and the value of the dollar would rise. But most of the people, in that event, would have so few dollars compared with what they now have that they would be much worse off, although each dollar could buy more. Let us always remember, that the time when a single dollar could buy the most, during the whole period from World War I until now, was in 1932--at the very bottom of the great depression.

It is also true that taxes have been high in recent years. But the incomes of the people have increased enough to pay these high taxes and to support a higher level of consumption and a higher level of saving at one and the same time. Likewise, the profits of business have been high enough, after taxes, to induce a high and expanding level of investment.

Viewing the whole period from the start of the fiscal year 1947--the first year after demobilization--until the close of the fiscal year which ended June 30, 1952, the Federal Government has operated at a net budget surplus of 3.8 billion dollars. The cash surplus was several times as large. This surplus was achieved despite the extraordinary problems the country has faced. The budget deficit of 4.0 billion dollars for the fiscal year 1952 just ended brought the national debt to 259.2 billion dollars. This amount is no higher than on December 31, 1946, and is entirely manageable in an economy as vast and productive as ours. The current and prospective deficit should not prevent the maintenance of economic stability-if the current caution of businessmen and consumers is combined with adequate controls.

Taxes, prices, and the Government deficit are important problems. We must keep on working towards satisfactory solutions of these problems. But these problems should not obscure the fact--the far more important fact--that employment, investment, and production of goods and services for both civilian purposes and for national defense, have been moving upward toward new heights. The truth is that the economy is strong--and is growing stronger.

These are the controlling facts, as the American people consider whether they shall step backward or move forward in their practical efforts to achieve a free and peaceful world.

BUILDING FOR THE FUTURE

The current strength of the economy is our starting point today. We must move forward to advance that strength year by year. This kind of progress has always been desirable. The present world situation makes it imperative.

Within this decade by 1960--we can make great further gains in our economic strength.

We have the best trained and most highly skilled labor force in the world, the finest industrial and agricultural plant, and the most enterprising business management. These assets are all reinforced by the strength of our free institutions. Producers are provided with adequate incentives and rewards by our economic system.

Within this decade--by 1960--we can add at least 4 million to the 62½ million employed in civilian pursuits in June 1952. This can be done, even if world conditions should require us to maintain our armed forces at near their present size.

With our science, inventiveness and technology, if we keep their advantages open to all, and with a fast-growing population, we can during this decade register even larger annual gains in production than those of pre-Korean years.

The worker of today, with better training, better tools, and higher morale, is producing more per hour than ever before, and his productivity is increasing each year.

The farmer, with more mechanization and better fertilizers, is growing more per acre, and within this decade can greatly expand production for industrial use and for food, both for the domestic market and for export.

Within this decade--by 1960--we can lift our total annual output from the current level of about 340 billion dollars to nearly 100 billion dollars higher--in real terms.

We can do this, not by any ventures that would be strange to our economic or political institutions, but by conserving what is best in responsible free enterprise and responsible free government.

Our free enterprise system has undergone a transformation in outlook within a generation. We have come to recognize that depressions are avoidable; that a steadily expanding economy is attainable; that investment opportunity and consumer markets can grow simultaneously through the intelligent balance of production and distribution. Both employers and employees have come to realize that production policies, price policies, and wage policies can be adopted which will combine economic stability with economic growth.

Not yet perfectly, but quite workably, our free enterprise system has been applying such policies in recent years. The proof of this lies in the progress of the economy. A still better job, with less friction, is attainable in the future.

While our major reliance should continue to be upon our enterprise system, the process of growth also requires vigorous public policies. The central purpose of such policies, in the economic field, is to help make the economy more productive and more dynamic, and to assure that none who are deserving are excluded from opportunity to play their full part and to earn a just reward.

We have found from experience that programs serving this purpose are needed in these main categories:

To make agriculture more productive, by conserving and improving the soil, by making credit readily available, by improving work opportunities for farm labor, and by protecting the farmer from the price and income hazards peculiar to his work.

To make small business more productive, by keeping open its access to credit on reasonable terms, and by an antitrust policy which protects efficient small businesses from any disadvantages which might result just because they are small.

To make all business more productive, by stimulating the expanding markets which are essential to business growth and profits.

To make the worker more productive, by protecting him from fear of unemployment and of unmerited want in old age, and by assuring free collective bargaining.

To make the underpaid more productive, by setting a floor below which wages shall not fall, until industrial development and self-development can further lift their productiveness and their standards of living.

To make the citizen more productive, through improving education, housing, and health services.

To make our natural resources more productive, by protecting them from exploitation or deterioration through such means as flood control and forest management, and by developing them for such purposes as navigation and power.

To make the whole economy more productive in the long run, by using monetary and fiscal measures, along with other policies, to stabilize and expand the economy, and to protect it against depression.

None of these programs can be neglected in the course of national defense, because they are all essential to our total national strength. Some of them, because of their direct bearing upon national defense, have had to be speeded up. Others, because of the cost of national defense, have had to be carried forward at a slower rate than would otherwise have been desirable.

As the productive expansion of the economy lightens the defense burden, we must look forward to increasing these programs to the rate which our general national interest requires.

Because we have the economic capacity to raise our current annual product of about 340 billion dollars to nearly ion billion dollars higher within this decade--by 1960--we can well afford to devote a portion of this gain to advancing these essential programs.

In fact, it is only by carrying forward these essential programs that we can assure this high rate of economic progress. For economic progress in our type of society is closely linked with economic justice. Only through enabling all to share equitably in the products of our farms and factories, and in our bountiful natural resources, can we maintain the expanding demand to match our expanding productive power.

If the satisfaction of human wants does not keep pace with our productive power, depression results.

The years since World War II have demonstrated that our economic system, reinforced by public policy, has been able to avoid depression by keeping production and consumption reasonably in balance. Some maladjustments have occurred, but they have been remedied in time to prevent calamity.

Under these circumstances, it is unworthy of this great Nation to regard another depression as unavoidable. Through neglect, we could have one. But we know what it would cost. We are determined to take all necessary steps to avoid that cost.

The expansion of the economy which we can achieve within this decade is of a size sufficient, while supporting any foreseeable security programs short of total war, to enable us at the same time to lift progressively the standard of living, to come near to wiping out poverty within our own boundaries, and to make our proper contribution toward a more prosperous and more peaceful world.

It is neither idle nor irrelevant to think and work toward this future. It is these hopes for the future which provide goals and the courage to work toward them, at a time when so many hard and immediate problems confront us. Those who say that our current efforts are so large and so costly as to rob us of these hopes for the future, are not protecting the future. On the contrary, they are endangering the future by misjudging the needs of today.

OUTSTANDING IMMEDIATE PROBLEMS

To achieve a better future, we must meet correctly the pressing problems of the present. Carrying forward the defense program

We have not yet achieved the necessary build-up of our defensive strength, but notable progress has been made. Outlays for major national security programs, which were running at an annual rate of 19 billion dollars (in terms of 1951 prices) in the second quarter of 1950, were running at a rate of 50 billion in the second quarter of this year, and will rise to an annual rate between 60 and 65 billion next year.

These very substantial increases show not only an impressive record in the quantity, but also an impressive improvement in the quality, of the weapons and other materials we are buying. We must set our sights high, because we want our fighting men to have the best equipment we know how to make. We have been hastening the latest designs off the drawing boards and into production. This course has magnified the early technical difficulties of the programs. But it is now beginning to pay off in volume deliveries of aircraft, tanks, and other equipment which will more than hold their own against any enemy. The flow of such key hard-to-produce items will increase during the coming months.

Already, in contrast to the first year of the present defense program, in the 12 months just passed most of the increased spending has been for "hardware" and military construction. Soft goods procurement has stabilized on the plateau required for maintaining the present size of the armed forces.

As we proceed to develop the security program, the problems which must be resolved will continue to be complex. But the experience of the last 2 years now enables us to face them with growing assurance. We must continue to maintain a series of balances--a balance between volume production and further improvements; a balance among different types of weapons and forces, as technology and strategic considerations change; a balance between armed strength at home and aid to armed strength abroad; and a balance between the devotion of resources to defense purposes and their devotion to civilian uses. Moreover, we must continue to effectuate practical economies without yielding to superficial pleas for short-sighted economy at the price of safety.

Protection against inflation

Although the long-term rise in prices before the start of World War II has not prevented the great economic progress which has been made since then, we would now be even better off if the price level had been more firmly held. During the war, considering the size of the effort, the record of price stabilization was very good. The premature abandonment of controls after the war permitted the cost of living to rise 30 percent from the middle of 1946 to the middle of 1948--the great bulk of the rise since the war. This illustrates the danger of weakening controls now, when the expansion of the defense program is still under way. A further inflation of the price level or diminution in the value of the dollar can and should be avoided.

Despite a rapidly rising defense program, the general price level has been held remarkably stable since early 1951. This has been due to several main causes--increases in production since the Korean outbreak, a high degree of caution on the part of businessmen and consumers, and a well-rounded though not completely adequate anti-inflationary program. The maintenance of price stability depends upon the further expansion of production, continued caution in buying, and the maintenance of an adequate anti-inflationary program at least for another year or two.

Unfortunately, the anti-inflationary program was weakened rather than strengthened by the Congress this year, and I believe that it will be the duty of the Congress next year to strengthen it. In the meantime, the Government will exert every resource available to control inflation. The outlook for the next few months is favorable, if neither business nor consumers resort to excessive buying, which would be foolish in view of the fundamental adequacy of most lines of supply.

The financial affairs of Government

We would all like to live in a world where public expenditures could be reduced and taxes correspondingly reduced. But the issue now is not so simple as that. The issue is whether we could reverse the upward course of public outlays and correspondingly lighten the tax burden, without suffering disadvantages which would far outweigh the benefits.

The plain facts are that we cannot afford to reduce the size of our efforts in the pursuit of world peace either at home or abroad. These efforts, along with the costs of past wars (veterans' benefits and interest charges), comprise more than 85 percent of the Federal Budget for the current fiscal year. The nonsecurity outlays of the Government have already been cut severely. Because of the long-run needs of an expanding economy and a growing population, we cannot afford for long--although we have had to risk it for a while--to hold outlays for such items as resource development and slum clearance, education and health, at the current levels.

It was my view at the commencement of the defense emergency that, in a period of full prosperity and partial mobilization, enough taxes should be collected to balance the Budget. By January of this year, it was clear that this principle had been departed from by the Congress to a degree which made it impossible to avoid a deficit.

Whether the Government runs a surplus or a deficit is important, but it is not of such decisive importance for the economy as to outweigh all other considerations. There have been times when a Federal surplus did not protect the economy against inflation, and other times when a Federal deficit did not produce inflation. Over the next year or two, the inflationary problem would be easier to deal with if revenues were larger and the deficit smaller. But the prospective deficit is not sufficiently threatening to our economy to justify reducing it by gambling with our national safety.

The significance of the deficit should also be judged over a period longer than one year, and in relation to the size and productive growth of the economy as a whole.

During the current fiscal year 1953, the Government is likely to run a budget deficit in the neighborhood of 10 billion dollars, according to tentative calculations by the Council of Economic Advisers. This means that for the entire 7-year period starting with the fiscal year 1947, which was the first fiscal year succeeding demobilization after World War II, the Government will have run a total budget deficit of about 6 billion dollars. If we take into account the net excess of receipts in the trust and other accounts, the fiscal years 1947 through 1953 will show an estimated cash surplus of about 18 billion dollars. This has been a good performance. I would have liked it to have been even better. But certainly these facts do not justify fear of disaster in an economy which, during the same span of years, will have lifted its total annual output from about 270 billion dollars to 350 billion dollars or more, measured in 1951 prices.

With respect to the national debt, which stood at 258 billion dollars at the end of the fiscal year 1947, and was reduced to its postwar low point of 252 billion dollars in April 1949, it is estimated that the debt may rise to almost 270 billion dollars by the end of the fiscal year 1953. It would have been better to have avoided an increase of this size by more realistic tax legislation. But it would be all out of perspective to say that, in order to hold this increase of the national debt to a few billion dollars less, we should jeopardize the national security by slashing our defense expenditures.

To the extent that the Congress does not reduce the deficit through tax action, the only available course is to seek the more gradual removal of the deficit by (a) the leveling-off of security outlays at a maintenance rate after the necessary build-up has been achieved, (b) the increase in revenues resulting from the further expansion of the economy, and (c) the continuation of policies designed to eliminate waste and increase efficiency without sacrificing essential objectives for national security and for economic progress.

Labor-management relations

The steel dispute in a time of national emergency brings to the fore again the problem of relations between employers and workers.

It has long been recognized that certain types of work stoppages affect the whole national interest so greatly that a way must be found to bring them to an end before irreparable damage is done. While various types of public bodies may offer advice, this advice may be rejected by either party. Any governmental authority of a more conclusive character would as a practical matter have to include the authority to deal with the subject matter of the dispute. This is because any action by the Government requiring resumption of operations, without touching upon the issues at stake, is an intervention, regardless of the merits on the side of that party which desires no change.

Present legislation does not meet this problem, in cases of nation-wide disputes in major industries. In such cases, it allows the Government only to achieve a delay in any threatened shutdown, either through the method used in the steel case, or through use of the Taft-Hartley Act. The steel case shows that delay is not enough. There must be a basic solution.

Nor is authority for the Government to make recommendations always enough-though it has succeeded in settling nearly every case that has arisen so far, except steel. In the steel case, the properly constituted Government agency--the Wage Stabilization Board--made recommendations for settlement of the dispute. One of the parties has thus far refused to agree to a settlement, even though the other party has indicated its willingness to accept considerably less than the Board recommended, and even though the Government, in its earnest efforts to avoid a stoppage, indicated that it would grant price concessions well in excess of any required under existing law or justified because of the wage increases proposed. When one party to a dispute which is critically affecting the national interest recognizes no obligation to abide by the recommendations of the Government--although the Government is the only resort of the people when the parties cannot agree--the need for more adequate legislation is fully demonstrated.

I have requested new legislation which would permit the Government to maintain essential production, to be fair to both sides in the dispute, and to retain the maximum degree of free collective bargaining. Such legislation has not been enacted, and I hope that the Congress will recognize the need for it.

At best, however, any such legislation can provide only a temporary or interim solution. We all know that, in a democracy, under our kind of economic system, differences between management and labor can be resolved enduringly only by agreement and not by intervention.

I do not know, as this is written, how soon the steel dispute may be ended. The only practical method now open for the settlement of the steel dispute is bargaining between the parties. I have continuously urged that the parties recognize the emergency confronting the Nation. It is imperative that the parties settle their differences immediately, and resume the production of steel--the loss of which is now causing such great damage to the national defense and to the civilian economy.

The parties must realize that collective bargaining is a precious liberty, enjoyed by both employers and workers, and that the possession of liberty involves not only rights but also duties on the part of both employers and workers--including the duty so to exercise freedom that it does not encroach upon the freedom of others. The freedom of all the people is at stake in the current emergency, and the production of steel is essential to the support of that freedom.

This should be taken to heart, not only in the interest of the country, but also because any failure to do so might ultimately cause the country to place restrictions upon the economic freedom of management and labor which would represent a new and perhaps a serious departure from our way of life. Economic relations with the free world

There is general agreement that we must join with the free world in the development of military strength. But there is not yet in this country an equally general understanding that the military security of the free world is inseparable from its economic future. This is true because economic strength is the source of military strength, and because no nation can maintain either the means or the morale to maintain a great defense effort in a period short of total war unless its economic conditions are at least tolerable. It is true for the even more important reason that the free peoples of the world want not only to be secure from military attack; they also want to live as free men should live. They want adequate food and clothing, housing, and medical care. They want to advance their industrial arts, so that they will have the productive power to achieve these ends. These aspirations are not only worthy; they are vital.

The United States would be in much greater danger, if the people of any substantial portion of the free world should come to believe that we are not interested in their human aspirations, but interested only in helping them to arm in order to help defend ourselves. This would provide the communists with a propaganda weapon against which counter-measures would be extremely difficult.

Recent actions by the Congress have displayed a failure to appreciate in full the importance of these facts. But facts have a way of persisting, and I am sure the time will come when the Congress will respond to them fully. I can only hope that it will not be too late.

The people of the United States have gained more through the maintenance of freedom than any other people in the history of the world. Hence we have the most to lose if freedom is lost, and we cannot enduringly remain free unless freedom predominates in the rest of the world.

There is nothing in our own history, or in the history of all human events, to indicate that freedom can be maintained without cost and effort. It costs a lot to maintain freedom, in money and material things, in human understanding, and sometimes in blood. To avoid an incalculable cost in blood, we must be prepared to sustain a great effort in money and material things and in human understanding.

The building of military security is only a first stage in this long effort. We must be prepared, while that first stage is going forward, and increasingly after it is completed, to make our fair contribution toward a more prosperous free world. And a more prosperous free world will mean a more secure free world.

In this long effort, the kind of emergency aid which we have thus far been extending will need to be supplemented and then increasingly supplanted by a more normal flow of capital from the United States to other countries. This, in turn, will need to be accompanied by more realistic appreciation that exports must in the long run be accompanied by imports.

It is disturbing to note that, despite the high level of employment in the United States, pressures have been growing recently to restrict imports. Embargoes on importation of foreign products, increases in duties on imported goods, and numerous requests for other increased duties, are some examples of how these pressures for restriction of imports have manifested themselves. The pressures for restrictionism have generally been exerted with too little consideration for the effects that the measures have on our security objectives, and on economic policies consistent with our position as a creditor nation.

Trade restrictions have a direct impact on United States programs to strengthen the free world. The joint defense effort must be built on a solid foundation of strong nations acting together. We cannot consistently throw up barriers here, while, at the same time, we urge the creation of a close partnership in the North Atlantic community. Inconsistencies of this sort undermine the basis on which our position of leadership rests. In addition, the economics of our friends are much more dependent on foreign trade than the economy of the United States. If they are unable to earn dollars to pay for those essential commodities which they now purchase in the dollar area, they will be under additional pressure to secure them in other areas of the world, including the Soviet bloc.

The encouragement of economic conditions which will enable the other free nations to pay their own way is the goal that we must seek, as a transition from the emergency conditions which have made it essential for us to extend temporary aid.

The way to get out of an emergency is not to pretend that the emergency does not exist, but instead to remove the conditions which have produced the emergency. Communist subversion will present no great threat to the free world, as the free world achieves economic stability and further economic progress. Communist aggression may still continue to be a threat, but the free world will then have the clearly apparent power to resist any such aggression. We must continue, with courage and vision, to help create the conditions in the free world which will provide the only dependable foundation for lasting peace.

SUMMARY Of ECONOMIC DEVELOPMENTS IN THE FIRST HALF Of 1952

At midyear 1952, the Nation had made further progress in acquiring the greater economic and military strength which will enable it to continue to meet, in company with the other countries of the free world, the threat of communist aggression.

Substantial expansions of capacity in such basic industries as steel, aluminum, and electric power were well under way.

Deliveries of military goods and construction for the major national security programs during the first half of 1952 reached a total of almost 15 billion dollars, 9 billion dollars above deliveries in the first half of 1951, and 12 billion dollars above the level in the second half of 1950.

Total output during the first 6 months of 1952 expanded at a moderate rate. Measured in dollars of constant buying power, gross national product was running at an annual rate (seasonally adjusted) about 1 percent higher than in the preceding 6 months.

Industrial production, after regaining the small amount of ground lost in the second half of 1951, slipped back in the second quarter, partly because of work stoppages in steel and petroleum. For the half year, the index of industrial production was 3 percent below the first half of 1951.

The civilian labor force during the past half year averaged about the same as a year earlier, the increase in the total labor force being taken up by growth of the armed forces.

Civilian employment in June totaled 62½ million. Employment during the first half of 1952 averaged about 300,000 above the first half of 1951, all of the increase occurring outside agriculture. Agricultural employment continued its downward trend. In manufacturing, there was a small decline in average weekly hours of work, reflecting, in part, some weakness in the markets for many consumer goods.

Unemployment during the first 6 months of this year was close to 300,000 below the same period a year earlier. In the last month of the half year, unemployment was the lowest for any June since World War II.

Work stoppages caused more loss of working time than during the first half of 1951, partly because of an increase in the number of stoppages and partly because of the size of some of the industries involved.

Economic stability was well maintained during the past half year. The monthly index of wholesale prices drifted downward in each month, and in June was 2 percent below December 1951.

Consumers' prices, after edging downward early in 1952, moved up again by May to about the record level reached at the end of 1951.

Wages rose, but less rapidly than in the first half of 1951.

Average hourly earnings in all manufacturing industries, for example, moved up 4 percent during the comparable period a year earlier, and only I percent in the latest half year.

The volume of money in private hands in June was 700 million dollars below the December 1951 level.

Total bank loans and investments expanded 2 billion dollars, or 2 percent, from December to June. Partly because of less strong demands for private credit, the voluntary program of credit restraint and the controls over instalment credit were suspended, and the housing regulations were somewhat relaxed. Legislative authority for the voluntary credit restraint programs and for instalment credit controls was ended in the amended Defense Production Act.

Personal incomes continued to rise, principally because of increases in salaries and wages.

Disposable income--personal income after taxes--was at the seasonally adjusted annual rate of 231 billion dollars during the first half of 1952, 2 billion dollars, or 1 percent, above the second half of 1951, and 10 billion dollars, or 5 percent, above the first half of last year.

Consumer spending rose only a little more rapidly than earnings from the second half of 1951, so that the proportion of disposable income saved, about 7 percent, was nearly as large as the high level of the preceding year. Moderation in consumer spending was one of the chief factors in the continued stability of the economy.

Residential construction remained high. The number of housing starts totaled 568,000 for the period January-June, which was only 4 percent below the volume of starts during the first 6 months of 1951.

Consumer credit outstanding, after declining seasonally during the first quarter of this year, climbed rather sharply in the second, paced by the rise in instalment credit. The suspension of instalment credit regulations early in May undoubtedly contributed to the increase. At the end of June, instalment credit was 600 million dollars, or 4 percent, above the level of December 1951. In contrast, during the first half of 1951, instalment credit dropped 500 million dollars.

Agricultural marketings were about 6 percent above the level of the first half of 1951, so that despite somewhat lower prices there was an increase in cash receipts. However, net earnings were below 1951, because of the rise in farm costs. Crop prospects, as of early July, were relatively good, with current indications pointing to a total crop production second only to the record year 1948.

Manufacturers turned out about the same amount of durable goods as in the first half of 1951, production related to defense offsetting a decline in the output of consumers' durable goods. However, production of nondurable goods by manufacturing industries was less than in the first 6 months of 1951.

Wholesale sales, seasonally adjusted, were below the level of the first half of 1951, and slightly below the level of the second half of that year.

Retail sales, seasonally adjusted, rose above the first half of 1951.

The accumulation of business inventories occurred at a sharply failing rate after the second quarter of 1951. From the first to the second quarter of this year, there was a decline in inventories. The decline in the rate of investment in inventories was one of the major factors in promoting economic stability during the past 12 months.

Business investment in construction and equipment has remained high, reflecting the progress noted above in the expansion of productive capacity. Outlays for these purposes were at the seasonally adjusted annual rate of 38 billion dollars during the first half of 1952, which was 3 percent above the level of the first half of 1951, and 4 percent above the second half.

Business borrowing from commercial banks followed a more nearly normal seasonal course during the first 6 months of this year than a year earlier, when the rapid accumulation of inventories stimulated the demand for funds. Commercial and industrial loans fell 700 million dollars, or 3 percent, from December 1951 to June 1952. In contrast, during the comparable period a year before, total business loans expanded 1.8 billion dollars. Although business borrowing from commercial banks was less than a year before, the demand for longer-term capital was greater, partly because of the high level of investment in plant and equipment.

The volume of corporate securities floated to obtain new capital during the past 6 months was 700 million dollars, or 21 percent, above the level of the first 6 months of 1951.

Corporate profits, before taxes, were running at an estimated seasonally adjusted annual rate of 41 billion dollars during the first half of this year, which was about 12 percent below the rate of the first half of 1951, but slightly above that of the second half. Corporate profits after taxes were about 13 percent below the first half of 1951, and slightly above the second half of that year.

Total Federal expenditures, during the fiscal year just ended, rose to 66 billion dollars, 21½ billion above the fiscal 1951 total. The increase was due primarily to purchases of goods and services for the major national security programs.

Federal receipts for fiscal 1952, due to higher tax rates and the greater dollar volume of business activity, rose to 62 billion dollars, 14 billion above the total for the preceding year. The relatively greater growth in expenditures in fiscal 1952 resulted in a budget deficit of 4.0 billion dollars, compared with a surplus of 3.5 billion in fiscal 1951. In fiscal 1952, the Federal Government's cash budget was about in balance; in 1951, there was a cash surplus of about 7.6 billion dollars.

In Federal public debt operations, the most notable developments during the past 6 months were the announcement by the Treasury in April of extensive changes in the types and terms of U.S. savings bonds intended to increase their attractiveness to the public, and the highly successful offer of a 6-year bond, the first marketable bond offered since World War II for the purpose of raising new money.

State and local governments' receipts and expenditures have risen during the past 2 years, the latter in part because of a growth in outlays for new construction. The increase in the latter has also resulted in a record volume of new securities issues.

Many foreign nations, largely as an aftermath to the world-wide post-Korean surge in business, have experienced balance of payments difficulties. Their expanding domestic production, rising incomes, and in many cases inflation, have contributed to an increase in the imports of many foreign countries abroad. Exports, on the other hand, have either failed to rise as fast as imports, or (particularly in the case of countries exporting raw materials) have actually fallen in value. Corrective actions have been taken to improve balance of payments situations, largely through such measures as credit controls to restrict loan demand, fiscal measures, and increased import restrictions. By the first half of 1952, there was evidence that, partly because of the use of the former measures, most countries in the free world were achieving stability at high levels of production.

United States imports of merchandise during the first 5 months of 1952 were at a rate 11 percent higher than in the second half of 1951, although they were still below the first half of that year. The recent rise in imports was in large measure due to reduction in the large stocks of many commodities, which had been built up late in 1950 and early in 1951.

United States exports of nonmilitary goods, despite the increase in import restrictions and other measures taken by many foreign countries, maintained during the first months of 1952 the high levels of the last part of 1951. Exports of military supplies increased.

HARRY S. TRUMAN