000,000, making a total of $1,558,000,000 which may be regarded as repayable expenditures made during the fiscal year 1934. The part regarded as nonrepayable totals $2,725,000,000. This sum has been spent mainly for grants, aids, public-works projects, and administrative expenses.

The total receipts of the Government for the fiscal year 1934 reached in the aggregate $3,115,500,000. Of this amount $2,640,600,000 came from internal revenue, $313,400,000 from customs, $152,600,000 from miscellaneous revenues, and $8,900,000 from receipts due to the realization upon assets. Income tax supplied $818,000,000 of internal revenues; miscellaneous taxes (e. g., estate, capital stock, liquor, tobacco, stamp, and excise taxes), $1,469,600,000, and processing taxes, $353,000,000. Since the processing taxes are appropriated for the use of the Agricultural Adjustment Administration, their total should be subtracted from the aggregate receipts shown above in order to arrive at the general receipts of the Government.

The general receipts of $2,762,500,000, excluding processing taxes, approximately equaled the regular expenditures for the year, a fact which should be duly recognized.

The deficit at the end of the fiscal year 1934, as shown in the General Budget Summary, was $3,989,500,000 in round figures. After deducting $359,900,000 for statutory debt retirements during 1934, the resulting net deficit financed from borrowings was $3,629,600,000. The gross increase in the national debt amounted to $4,514,400,000, making a total debt of $27,053,000,000, as indicated in Supporting Schedule No. 6. This addition to the debt during 1934 included the financing of the net deficit of $3,629,600,000 and an increase of $884,800,000 in the cash balance of the general and special accounts, as shown in Supporting Schedule No. 4.

THE ECONOMIC SITUATION

Because of its profound influence on the Federal Budget, the economic situation may be briefly summarized at this point. Business was substantially more active during the fiscal year 1934 than in either of the two preceding fiscal years. At the opening of the year, in July 1933, producers were increasing their operations sharply reflecting in part larger orders placed in anticipation of code regulations. There was a temporary decline in output in the autumn and early winter, in response to an overaccumulation of inventories during this period, but production again advanced during the last half of the fiscal year. Industrial output for the period as a whole, when measured by the Federal Reserve Board index, was 25 percent greater than in the fiscal year 1933 and only slightly below the level

of the fiscal year 1931. The degree of recovery varied in the different industries. Production of nondurable goods, which had declined only moderately during the depression, approached within 1 percent of its 1923-25 average, while output in the durable-goods group, where prices showed relatively small declines since 1929, was 38 percent below its average in those years. Construction activity financed by private individuals continued to be restricted in amount, although public construction increased. This result was in no way surprising in view of the enormous sums spent on permanent structures, in many cases in excess of actual requirements, during the period 1925-29.

The average volume of industrial employment expanded in proportion to production, and the total number of unemployed at the end of the fiscal year 1934, although still very large, decreased by about 2 millions, as compared with June 1933, and 4 millions, as compared with the worst point of the depression, which fell in March 1933. Reflecting higher wage rates and an expansion in total hours worked, industrial pay rolls averaged sharply higher over the year. Distribution of commodities at retail to consumers increased, but in smaller proportion than output, with the result that inventories of manufactured goods showed a net growth over the year ended June 30, 1934.

At the end of the fiscal year 1934 the Bureau of Labor Statistics index of wholesale commodity prices stood at 74.8 percent of its 1926 average, as compared with 66.3 percent on June 30, 1933, and 59.6 percent early in March 1933. The sharpest rise in prices took place in farm products which were affected by anticipation of smaller crops during the summer of 1934. The rise in agricultural prices more than offset the decrease in farm output, and farmers' cash income, including governmental rental and benefit payments, was 34 percent higher than in the fiscal year 1933. Corporate profits, aided by larger volume as well as by inventory appreciation, also increased considerably.

Following the close of the fiscal year 1934, output in basic industries fell sharply through September, reflecting particularly an overaccumulation of inventories in steel and textile products and the delay in the placing of orders for autumn merchandise because of uncertainty as to the effect of the drought. Industrial prices, however, remained relatively stable and prices of farm products and foods moved into closer alignment with prices of nonagricultural commodities. In retail markets, goods continued to move in sustained volume with the result that inventories were reduced to lower levels and output was again increasing in the final quarter of the calendar year 1934.

The amount of $1,235,000,000, mentioned above, includes $20,000,000 for expenditures estimated to be made this year from an additional sum of approximately $125,000,000 which will be required for 1935 to make up deficiencies in the appropriations for the regular departments and establishments, including the Veterans' Administration. Of this additional sum, approximately $65,000,000 will be required to meet the needs of the Veterans' Administration due to the application of new laws or revised rules pertaining to serviceconnected disabilities.

Of the total expenditures for recovery and relief, $788,000,000 are for the Agricultural Adjustment Administration and the refunding of processing taxes, while $4,472,000,000 are devoted to other purposes in the recovery and relief program. During the first 5 months of the current fiscal year the Government expended for recovery and relief $1,712,000,000, or at the rate of about $350,000,000 per month.

A summary of the aggregate amounts expended for recovery and relief from February 1, 1932, to November 30, 1934, shows a total figure of $8,164,900,000. This expenditure has been distributed approximately as follows:

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From February 1, 1932, to November 30, 1934-nearly 3 years— provision for recovery and relief through appropriations and authorizations reached a grand total of $14,412,400,000. Of this total there remained unexpended on November 30, $6,247,500,000, a large part of which had already been obligated though not yet actually paid out by the Treasury. The sum of approximately $900,000,000 from the unobligated portion must, however, be made available for transfer to emergency relief needs during the remaining months of the current fiscal year. Recommendation is therefore made that the Congress provide for the immediate transfer of such unobligated portion for relief during the transition period from direct relief to work relief as outlined in my annual message.

Appropriations for emergency relief purposes will be completely exhausted early in February. Hence it is vitally necessary that unobligated balances of moneys already appropriated be made immediately available to care for the unemployed during the remainder of the fiscal year 1935 and the transition period. Through such action no new appropriation will be required to carry our relief needs for the current fiscal year.

The total receipts for the fiscal year 1935 are estimated at $3,711,000,000. After deducting from this amount the processing taxes, estimated at $589,000,000, there remains $3,122,000,000 to be applied against other expenditures of the Government.

The income tax for 1935 is estimated to yield $234,000,000 more than in 1934, or a total of $1,051,000,000. The receipts from miscellaneous internal-revenue taxes, exclusive of processing taxes, are expected to produce $60,000,000 more in 1935 than in 1934, thus bringing the total yield up to $1,543,000,000. It is estimated that customs will show a decrease for 1935 under 1934 of about $26,000,000, due to the Cuban sugar agreement and to the foreign-trade situation in general. Miscellaneous revenues and other receipts from the realization of certain assets are expected to yield for 1935 about $227,000,000, an increase of $66,000,000 over 1934.

The deficit for the fiscal year 1935 is estimated at $4,869,000,000, including $573,000,000 for statutory debt retirements. On December 26, 1934, the gross national debt stood at $28,484,000,000. It is estimated that the gross debt on June 30, 1935, will amount to about $31,000,000,000. In the Budget message of last year it was estimated that the national debt on June 30, 1935, would amount to $31,800,000,000. According to the latest estimates, the debt will not reach this amount by $800,000,000.

THE FISCAL YEAR 1936

In the Budget message of last year I said, speaking of the fiscal year 1936, that we should plan to have a definitely balanced Budget for the third year of recovery and from that time on to seek a continued reduction of the national debt.

Despite the substantial measure of recovery achieved since that statement was made, unemployment is still large. The States and local units now provide a smaller proportionate share of relief than a year ago and the Federal Government is therefore called upon to continue to aid in this necessary work.

For this reason it is evident that we have not yet reached a point at which a complete balance of the Budget can be obtained. I am, however, submitting to the Congress a Budget for the fiscal year 1936 which balances except for expenditures to give work to the unemployed. If this Budget receives the approval of the Congress, the country will henceforth have the assurance that, with the single exception of this item, every current expenditure of whatever nature will be fully covered by our estimates of current receipts. Such deficit as occurs will be due solely to this cause, and it may be expected to decline as rapidly as private industry is able to reemploy those who now are without work.

A résumé of the financial plan which the General Budget Summary shows for 1936, as compared with 1934 and 1935, is presented belów.