President Ford yesterday sent Congress his final economic report, predicting extension of economic recovery in 1977 and - by implication - warning President-elect Jimmy Carter to proceed cautiously in his drive to expand the economy.
At the same time, Ford's Council of Economic Advisers, in what may be a controversial decision, recalculated "full employment" to mean 4.9 per cent unemployment rather than the 4 per cent figure previously used.
This means, council Chairman Alan Greenspan said, that policymakers will run into danger of regenerating unflation as the jobless rate approaches 5 rather than 4 per cent.
Greenspan said at a press conference that although the real economic growth rate had slowed to 3 per cent in the final quarter of 1976, as announced yesterday by the Commerce Department, a "reacceleration" is already under way that is likely to produce a growth rate 6 per cent or better in the first quarter of 1977.
This is due in part to the fact that the low growth rate in the fourth quarter of 1976 was caused by a reduction in the rate of growth in business inventories. To meet consumer demand, Greenspan said, there would have to be a restocking, which would boost the first-quarter rate.
Other factors are the Ford automobile strike, which depressed the fourth quarter, and a peculiarity in price indexes, which helped to understate real growth in the final three months by perhaps half a percentage point.
President Ford's assessment of the general outlook for 1977 includes a 5.2 per cent real growth rate - which implies some slowing down after a fast first quarter - a 5 to 6 per cent level of inflation, and unemployment "down to nearly 7 per cent" by year's end.
Carter's economist offer almost the same outline with what they contend is a better stimulus package. But they suggesi it is possible to have an unemployment rate at 6.5 per cent by the end of the year if, as Treasury Secretary-designate W. Michael Blumenthal has said, "we are lucky."
Greenspan said he though the Cater program "would not make a significiant economic difference" in the meaning the next 12 to 18 months. But a Senate Budget Committee staff report said Ford's budget would produce of approximately the same as Carter's.
President Ford claimed that 1976 was "a year of sound economic achievement." His advisers pointed to 6.2 per cent real economic growth for the year as a whole against a negative rate of 1.8 per cent in 1975. Inflation was reduced but unemployment remained a perplexing problem, the CEA report said.
Revised jobless data for 1976, month by month, as published in the CEA report, shaved 0.1 off the November and December rates, making them, respectively, 8 and 7.8 per cent.
Even so, the December 7.8 per cent jobless rate matched the January, 1976, rate, istead of dipping under 7 per cent as the Ford administration had hoped and predicted.
The main reason for the change in the full employment definition, according to the report, is a "dramatic change" in the labor force since the mid-1950s. More workers, especially young persons and women, have been moving in and out of the labor force.
Each entry and re-entry into the job market involves a job search. Until jobs are found, that means and addition to the unemployment statistics.
At the press briefing on the economic report, CEA member Burton G. Malkiel said that "much of the economics profession believes the true full empolyment rate is somewhere between 5 and 6 per cent unemployment."
One implication of this calculation is that the actual output of the economy at full employment would be less if about 95 per cent of the labor force were employed than if 96 per cent were working.
The difference, Malkiel said, is that the so-called "fiscal tax dividend," or budget surplus, produced by an economy operating at peak rates, under the new definition, would be about, $30 billion less incalender than 1980, than the $56 billion first calculated.
Carter had used a figured approximately the same size - $60 billion - as the fiscal dividend available to finance new programs in a fully employed economy.
Greenspan said the CEA report was frafted before the Carter economic program was announced.
But a statement of "general policy principles" needed for a sustained economic expansion reads like a point-by-point criticism of the President-elect's decisions.
The four main principles were that stimulus should be provided by tax reduction rather than increased spending; that reduction in taxes should be permanant rather than in the form of a rebate; that stimulative measures should be balanced between incentives for business and consumers, and the amount should be limited.
Carter $23 billion to $30 billion two-year stimulus has a sizable spending component, especially in the second year. The tax cut is a rebate rather than permanent than on the business investment side. Overall, it is more than the stimulus provided by Ford for 1977.