SURVEY of CURRENT BUSINESS September 1973 of Growth in Major Foreign Economies Quarters of the Preceding Capital Spend- Mainly Traceable to Manufacturing
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SEPTEMBER 1973 / VOLUME 53 NUMBER SURVEY OF CURRENT BUSINESS CONTENTS U.S. Department of Commerce THE BUSINESS SITUATION Capital Spending 2 Frederick B. Dent / Secretary Export and Import Demand 3 Sidney L. Jones / Assistant Secretary for Economic Affairs Inventories 5 Edward D. Failor / Administrator, SESA Personal Income 5 Bureau of Economic Analysis National Income and Product Account Errata 6 George Jaszi / Director Morris R. Goldman / Deputy Director National Income and Product Tables 11 Lora S. Collins / Editor Leo V. Barry, Jr. / Statistics Editor ARTICLES Billy Jo Hurley / Graphics Capital Expenditures Rise to Continue Through 1973 15 Staff Contributors to This Issue U.S. Direct Investment Abroad in 1972 20 Richard D. Carter Leonard A. Lupo U.S. Balance of Payments Developments: Lora S. Collins Barbara L. Miles Second Quarter 1973 35 Donald A. King John T. Woodward Thomas W. 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Huron St. 842-3208. 112 N. Central 261-3285. 609 Federal Bldg. 284-4222. Savannah, Ga. 31402 Pittsburgh, Pa. 15222 235 U.S. Courthouse and P.O. Charleston, S.C. 29403 Detroit, Mich. 48226 Memphis, Tenn. 38103 1000 Liberty Ave. 644-2850. 334 Meeting St. 577-4171. 445 Federal Bldg. 226-6088. 147 Jefferson Ave. 534-3214. Bldg. 232-4321. Portland, Oreg. 97205 Charleston. W. Va. 253O1 Greensboro. N.C. 27402 Miami. Fla. 33130 921 S.W. Washington St. Seattle, Wash. 98109 the BUSINESS SITUATION CHART 1 J\S the annual forecasting season A major uncertainty in assessing the opens, there seems to be broad agree- current state of the economy, and the Residential Construction and ment that output growth will be slower outlook, is how inflation and high Mobile Homes in 1974 than in 1973. The American interest rates are affecting consumer Million units (Ratio scale) Statistical Association's quarterly poll, propensity to spend. Consumer surveys 4 PRIVATE HOUSING STARTS taken in August, showed a median fore- this year suggest a deterioration of cast of 2.6 percent real growth from sentiment, but there was no evidence, 1973 to 1974 as compared with 6 percent at least through the summer, of any expected this year. While most fore- marked weakening in the propensity Total casters evidently consider a slowdown to spend. The pace of auto sales, which as highly probable, there appears to be has been extremely high this year, has a wide dispersion of views on the extent slowed in recent months but only a of that slowdown and on the path of little. The new 1974 models are now economic activity over the next 18 being introduced, and their reception months. If the uncertainty and dis- will be an important clue to the future agreement are greater than usual this course of consumer demand. year, this probably reflects greater than The outlook for continued strong than usual difficulty in assessing the near-term growth in capital investment impact of monetary developments, demand was confirmed by the latest price movements, and the ongoing BEA survey of plant and equipment price-wage controls program. Price be- spending expectations (see pp. 15 to havior this year has been sharply 19 for details). It found outlays ex- ly and Aug. _ different from "normal"—encompass- pected to rise 6% percent from the ing a steep rise in agricultural prices, second quarter of this year to the , I , , , I , , , as well as a temporary freeze and other fourth. The increase expected for the controls that have affected price be- full year 1973 was reported at 13.2 havior. Interest rate developments have percent, the same as the expectation also been very different from past ex- reported 3 months earlier. Investment perience, for the monetary authorities in inventories, on the other hand, have in large measure permitted rising continues to be very modest, particu- interest rates to restrain credit demand larly when viewed in relation to strong and allocate credit (the prime rate is sales growth. being raised to 10 percent at major Strong growth of foreign demand for banks as this issue of the SURVEY goes U.S. output is an element in the current to press). In other recent periods of economic situation that contrasts rather credit restraint, by contrast, the au- sharply with conditions in recent years. thorities have not allowed interest rates This country's price competitiveness to rise so much, and have operated has improved very substantially as the 1964 65 66 67 68 70 71 72 73 more through curtailing the actual result of exchange rate changes over Seasonally Adjusted at Annual Rates ability of banks and other inter- the past 2 years and of relatively less Data: Census mediaries to extend credit. inflation here than abroad. A slowdown U.S. Department of Commerce, Bureau of Economic Analysis 73-9-1 SURVEY OF CURRENT BUSINESS September 1973 of growth in major foreign economies quarters of the preceding capital spend- mainly traceable to manufacturing. could dampen the expansion of U.S. ing expansion (1968 11-1970 III) and Manufacturers7 markets are very sensi- exports, but continued solid gains seem 4% percent in the first nine quarters of tive to cyclical developments and their probable. the expansion that began in the first capital outlays are consequently far On the other hand, homebuilding quarter of 1963. more volatile than outlays of nonmanu- activity has been weakening this year, Although capital spending has pro- facturing industries. In the past, periods with the starts rate down from about vided an important thrust to aggregate of rapid economic growth have seen 2% million units (seasonally adjusted economic activity in the past two years, capital outlays of manufacturers re- annual rate) early in the year to an its contribution to the expansion of bound sharply and contribute the major average of just over 2 million units total demand has been less than in thrust to the increase in aggregate in- in July and August (chart 1). Some previous expansions. As can be seen vestment. In the current expansion, decline had been widely expected as from chart 2, outlays for plant and however, the ratio of manufacturers' an adjustment following the home- equipment rose faster than GNP in plant and equipment spending to GNP building boom that began in mid- previous cyclical upswings, so that the has risen only modestly above the low 1970, but recent developments in the ratio of plant and equipment spending reached in 1972 and is far below the cost and availability of mortgage to GNP increased. In the current highs reached in the mid-1960's (chart credit make it likely that the contrac- expansion, however, the ratio has shown 2). The basic reason for this is as fol- tion will be more severe than seemed little change and remains below earlier lows: Although manufacturers' invest- probable when the year began. Some peaks. ment spending has maintained a fairly analysts expect the starts rate to fall This difference between the current stable relationship over time to manu- as low as 1.5 million units by next cyclical expansion and earlier ones is facturing output—i.e., to GNP origi- spring, although many do not expect such a severe decline.