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Vol. L, No. 12, December 1976 Texas Business Review Articles 269 The Question of Economic Growth, 1976-1977, Lorna Monti 272 Building Construction Activity: Prospects for 1977. Charles H. Wurtzebach 275 Texas Regional Interaction Patterns, Charles P. Zlatkovich Bureau of Bu siness Research Tables Lorna Monti , Acting Director 271 Selected Barometers of Texas Business 273 Estimated Values of Building Authorized in Texas 278 Texas Highway Traffic Flow Regions 283 Local Business Conditions Barometers of Texas Business (inside back cover) The Authors Charts Lorna Monti Acting Director 270 Texas and U.S. Industrial Production Burea u of Business R esearch 270 Texas and U.S. Business Activity Charles H. Wurtzebach 27 1 Total Nonagricultural Employment in Texas Assistant Professor of Real Estate 271 Residential and Industrial Electric Power Use in Texas and Finance 272 New Nonresidential Building Authorized in Texas University of Texas at A us tin Charles P. Zl atkovich 273 New Resi dential Building Authorized in Te xas: Housing Units and R esearch Associate Total Value Bureau of Business R esearch Maps 276 Principal Highway Traffic Flows of Texas Counties 277 Texas Highway Traffic Flow Regional Boundaries Cover: Photograph by G. Pearce Moses, journalism student at the Un iversity of Texas at Austin. Subscription rate: $5.00 per year. Single copy: S.50. Address Texas Business Review is indexed in .\1arketing lnformatio11 Guide requests to Publications Office, Bureau of Bu siness Research, and Public Affairs Information Service and is available on P. 0. Box 7459, Austin, Texas 78712. Second-class postage microfilm from University .\1icrofilms. paid at Austin, Texas. Contents of this publication not copyrighted and may be The Bureau of Business Research is a member of the Association for reproduced freely. Acknowledgment of the source will be University Business and Economic Research. appreciated. l 9-6 i9-:- ..l ' - ' ' Lorna .\lonti What really happened to the economy in 1976? Gross declined statistically by one dollar- from S4, 143 to 54.14 :: national product (GNP) statistics indicate that in 1976 not a development that was likely to spur a wild spending economic growth, like the proverbial hare, spurted ahead spree. Despite the fact that historically this represents a and then slowed, while other evidence indicates that 1976 high level of income, consumers have become discouraged was the year of the tortoise from start to finish . by lack of growth in disposable income. A year-end assessment of economic activity reveals that Consumers were initially encouraged because monthly the base of the U.S. economy grew at a moderate rate for rates of inflation, if expressed in annual rates, were most of the year, as did the state economic base. low- 4.8 percent in January and 1.:: percent in Februarv. How can one say that the national economy grew only The primary explanation for these low ra tes is the stabili;v moderately when the year began with rosy reports of of food pri ces ; when this erratic component of the i nde~ increasing GNP? Goods and services were produced, no t for returned to normal, annual rates of 6.0 for July and August final sales, but for inventory rebuilding. Final sales measure were recorded. By October the increase in the consumer the sustainable rate of growth for the economy ; production price index was 5.3 percent from a year earlier. an for inventory accumulation cannot continue very long. Any improvement over the comparable 7.6 percent and l ::. o type of production is counted in GNP, however, so the rate perce nt of the previous two years. but nor enough of an of growth in GNP can outpace the underlying rate of improvement to encourage consumers with stable incomes. 1 growth during certain quarters of the year. This situation Wh ere did the increased G\"P go. if no t to consumas· did occur at the beginning of 1976 so that a misleading During the recession profits droppe d from 8.2 percent of picture of the state of the economy emerged. Final sales G!\:P in the fourth quarter of 1973 to 7.9 percent of G'<P and services or GNP less inventory accumulation, increased in the third quarter of 1976. Profit s increased by l :' . .+ at a rate of' approximately 4 percent per year for the first percent during the fi rst three quarters of l 9/6. This three quarters, a tortoise pace compared to the pace. of rebuilding should put business in a posi ti o n to incr<>Jse GNP. More than twice the final sales rate in the first investment ex penditures. hut this spur to em pl oyment hJ' quarter, the GNP finally se ttled down to sustainable rates no t yet appeared. for the second and third quarters. Final sales sustain Expenditures for producer's nonrc;;id cntial Jural'k equipment in 19 76 a,·e raged an annuJl rate of aho ur - movement in economic activity, and consumer purchases billion 197'2 dollars for the first three qu:irtt• r;;. in J '! _ _, Jnd (two thirds of all sales) sustain final sa les. Consumers 1974 levels hovered around 85 bil!ion l 9 - 2 dollJr'. started the year happily and in creas.ed their expenditures by · thei·r savings ra te By midyear 1t became obvious Alt hough the share ol rroJucrs going to ~Li;;in e ;;; re,·(" ·ercJ d ecreasing · . such behavior could not continue. From in 1976. the share of exrendirures did 1wt. .\., ~ re,ulr. w t.ii to o b servers that . third quarter per capita disposable in come employment and in .:ome in,·rea <. ed nnl \ m, 1JerJtel\ . the secon d to ' TEXAS BUSINESS REVIEW 150 .--~--.~~----.~~--.-~~----,-~~---,-~~-,-~~--.~~~ On the encouraging side, a moderate growth rate could TEXAS AND 'u.s. INDUSTRIAL PRODU CTIO N mean a rate of inflation lower than those of recent years. A ln dexes-Ad1usted fc:r seasonal voriotion-1967=100 140 low rate of inflation encourages consumers as much as high unemployment rates discourage them so in a moderate period the effect of statistics on consumer confidence would be neutral. Stable incomes. however , discourage consumers expecting incomes to continue rising. Consumer dissatisfaction apparent during 1976, a year of moderate growth , raises questions about the effects of economic growth and the amount of growth that is desirable. 1969 1970 1971 1972 1973 1974 1975 1976 Source. Federal Reserve Bank of Dallas. Economic Growth Total U.S . employment in the third quarter increased by 3 percent from a year earlier. Wages for the average worker Texas has been growing faster than the rest of the remained approximately constant. Estimated real spendable co untry and Texans have welcomed growth. The questions earnings for the average worker decreased 0.8 percent over of how much and how fast have not been frequently the yea r (September to September). brought up. In this situat ion it is worthwhile to examine Texas nonfarm employment by October was 2.4 percent some surprising economic theories that are relevant to the higher than the year-ea rlier figure, industrial production 3.1 pace of economic growth in Texas and the benefits Texans percent higher, and estimated real per capita income up 5 .0 might derive from that growth. Two kinds of economic percent. Texas in comes were growing relative to the growth are conceivable-increased participation in the national income, a movement that raised the state to the economy with the same level of physical goods produced rank of 29th in per capita personal income in I 975 from and increased participation with increased production of 32nd in l 974. physical goods. In creased participation prevents unemploy By the third quarter of 1976 the implications of stable ment rates from skyrocketing. Economic growth in the consumer incomes and low business investment began to form o f increased participation in the economy results from work themselves through the national economy and pro the expansion of the economy into activities that were duce a spate of less than buoyant statistics. The leading formerly o utside it. A good example is the accretion of indicators declined in August and again in September. Total household activities, such as child care, food preparation, employment registered a slight drop in September. As the and apparel manufacturing. The economy and employment, labor force grew, stable or slightly declining employment as measured by statistics, grow without an equally large caused unemployment to increase. increase in the use of resources. What will happen? If consumers continue to spend Economic growth as experienced in this country has steadily out of their stable incomes, the slow but steady combined increased participation with increased physical pace of activity could continue. A second year of moderate production. Although the limits to physical growth are growth is a potential policy goal for the Ca rter administra controversial and difficult to determine, it is apparent that tion. What are the implications of such a choice? Moderate energy and environmental constraints impose some limit growth would be accompanied by high unemployment that is different from the limit on growth through caused by normal labor force growth. (Unemployment rates participation. The limit on participation is, of course, the ri se both because people lose jobs and because people who size of the population. wnc not in the labor force begin to seek jobs unsuccess Two European economists- Stephen Lindner, a Swede, fully.) A moderate rate of growth would neither increase and Fred Hirsch , an Englishman- have suggested that there the num ber of job losers nor absorb all job seekers. are also social limits to economic growth, limits created not 250 TEXAS AND U.S.