Congress requires the President to submit each year a Report that
describes the state of the US economy. The Economic Report of the
President also traditionally includes a broad range of analyses of
current economic policy issues. This year, in addition to the chapter
on the US economy, the Report contains chapters on: children and the
well-being of families; racial and ethnic inequality; the
Administration's efforts to improve economic efficiency in the areas of
health and environmental policy; recent trends in antitrust policy;
and, the benefits of trade and opening international markets.
Report on the State of the Economy
Our Nation's economy is the strongest it has been in a generation.
In 1997, real GDP grew 3.9 percent, and employment rose by 3.2 million,
for an average rate of 267,000 jobs per month. The unemployment rate
dropped below 5 percent for the first time in 24 years, yet core
inflation rose just 2.2 percent.
And, this occurred during a period of historic deficit reduction:
the Federal budget deficit, which reached $290 billion in the 1992
fiscal year, declined to only $22 billion in fiscal 1997. And, the
President recently submitted to Congress a budget for fiscal 1999 that
projects a balanced budget for the first time since 1969.
As 1998 begins, the prospects for continued growth with high
employment and low inflation are excellent. The economy is remarkably
free of the symptoms that often presage an economic downturn -- that
is, inflationary pressures remain well under control; inventories are
lean in comparison with sales; and there is no evidence of any
financial imbalance that could disrupt the expansion. Our economy is
in fundamentally sound shape and well-equipped to handle any unexpected
bouts of rougher weather.
Key Theme of 1998 Economic Report: The Benefits
of a High-Employment Economy
The 1998 Economic Report of the President details the enormous
economic and social benefits to a high-employment economy. An economy
with strong job creation and low unemployment can make a broad and
lasting contribution to the well-being of the American people. Some of
these benefits are:
Reducing long-term joblessness. A tight labor market encourages
participation by those who might otherwise sit on the sidelines, and
makes it easier to absorb less skilled or younger and more
inexperienced workers into the labor force. These new labor market
entrants gain much-needed job experience, building the skills they will
need to hold down a job in the future.
Helping move welfare recipients into the workforce. Keeping the
unemployment rate low and job growth high is necessary to move current
welfare recipients into the work force.
Enhancing personal economic security. A tight labor market increases
the confidence of job losers that they will be able to return to work,
lures discouraged workers back into the labor force, enhances the
prospects of those already at work to get ahead, enables those who want
or need to switch jobs to do so without a long period of joblessness,
and lowers the duration of a typical unemployment spell.
Helping reverse the trend toward greater economic inequality. From
the 1980s until the early 1990s, the economy's ability to reduce
poverty through growth alone was hampered by a strong headwind: for
the poorest Americans, the benefits of an expanding economy were offset
by the sustained declines in wages at the low end of the earnings
distribution. Since 1993, living standards for all Americans are on
the rise, especially for those at the bottom of the income
distribution. The poverty rate fell to 13.7 percent in 1996, from 15.1
percent in 1993; the poverty rate for black Americans is at a
historical low, and in 1997 unemployment among blacks fell to its
lowest rate since 1973. Since 1993, household income has grown in each
quintile of the income distribution, with the largest percentage
increase going to the poorest members of our society. Maintaining a
full-employment economy is essential if this progress is to continue.
Direct and measurable effects on US economic growth. On average,
reducing the unemployment rate by a percentage point raises output by
approximately 2 percent; in 1997, 2 percent of GDP was $160 billion, or
roughly $600 for every American man, woman, and child.
Challenges for the 21st Century
Although our economy is strong and Americans are working in record
numbers, our Nation still faces other, broader challenges as we move
into the 21st century. The 1998 Economic Report of the President
discusses several of these challenges, including the following key
Children and the Economic Well-Being of Families. Chapter 3 of this
year's Report assesses the economic well-being of children and
families. An unacceptably high number of America's children still live
in poverty, but there have been notable improvements in children's
well-being over the past three years. Children have shared in the
benefits of the recent economic expansion: the official child poverty
rate has fallen by 2.2 percentage points since 1993. The primary reason
is that families have been able to bring their incomes above the
poverty line -- a benefit of the strong economy. Child poverty has also
declined due to an expansion of the Earned Income Tax Credit.
Despite these improvements, far too many children remain
economically vulnerable. One in five children, and nearly one in two
children in female-headed families, had incomes below the poverty level
in 1996. For this reason, the President has developed a number of
initiatives to strengthen the economic and social supports for
America's children. These proposals are reviewed in detail in the
Economic Progress of Racial and Ethnic Groups. Chapter 4 of the
Economic Report reviews trends in racial and ethnic economic inequality
and concludes that this country's longstanding goal of achieving racial
equality has not yet been attained. Although there has been progress in
narrowing economic gaps among racial and ethnic groups in the postwar
period, it has been very uneven.
The current economic expansion has brought signs of renewed
progress: since 1993, for example, the median income of black families
has risen more rapidly than that of non-Hispanic whites; in 1996, black
family income reached a new high, and the poverty rate for blacks fell
to a new low.
Nevertheless, substantial disparities in economic status across
racial and ethnic groups persist. For example, income gaps between
black and white families are as large today as they were 30 years ago,
and the median wealth of white families is by some estimates 10 times
that of black and Hispanic families.
Clearly, more needs to be done to promote equality of opportunity
for all Americans. Many of the Administration's current and proposed
policies -- such as those that encourage community empowerment and those
that promote improved quality and accessibility of education at all
levels -- are intended to address these disparities. The
Administration's 1999 budget proposal also signals a renewed federal
commitment to strong and effective enforcement of the Nation's civil
rights laws. It increases funding for federal civil rights enforcement
agencies by more than 16 percent. And, this January, in a Martin Luther
King Day address, Vice President Gore announced the Administration's
package of proposed civil rights enforcement initiatives. The President
has also devoted great energy and resources to his Initiative on Race,
an effort to further a national dialogue on race in America.