ECONOMIC

PRIVATE CONSUMPTIONThe growth of real disposable income slowed in the latter half of 1976but is expected to reaccelerate in 1977 as a result of strong employmentgrowth, the reduction in personal taxes, and moderate increases in consumerprices. Because of the slower growth in real disposable income in the latterhalf of 1976, the saving rate had fallen to 6 percent in the last quarter. Thisrate should rise in early 1977 with the start of the personal tax reductions,but for the year as a whole the saving rate is not expected to be appreciablydifferent from the 1976 average of 6% percent. Real consumption growthfor 1977 should therefore approximate the 4 to 5 percent rate expected forreal disposable income.The growth in consumer spending in 1977 is expected to be most pronouncedin the durable goods categories. The combination of a returnto strong and steady real income gains and lower layoff rates should continueto restore the confidence which is essential for accelerated growthin real expenditures on durable goods. The year-over-year growth in realpurchases of motor vehicles and parts is expected to be about 7-8 percent.This figure is down substantially from the 23 percent growth in 1^76 butstill represents an important contribution to a continued economic expansion.Another major factor bolstering spending will be the strong growth inhousing completions in 1977, which should stimulate furniture and appliancesales.NONRESIDENTIAL FIXED INVESTMENTThe growth of nonresidential fixed investment in 1976, especially in thelatter part of the year, was low for this stage of recovery, and by the end ofthe year the real level was still well below the 1973-74 peak. With theexpected increase in sales growth, and with the reduction in the corporatetax rate which will begin to affect investment later this year, real businessfixed investment is expected to increase by approximately 9 percentin 1977. The projected rate of investment will provide sufficient capacityfor the year ahead, but the share of investment in GNP will almost certainlyremain below the average of the late 1960s.Recent surveys of investment anticipation have indicated that currentdollar expenditures in business fixed investment should increase by 11 to 13percent in 1977. Surveys often underestimate actual new investment in periodsof expansion, however, and the recent surveys may not have takenfull account of the effects of the proposed cut in taxes in 1977. An increaseof about 15 percent therefore seems quite possible.Investment growth in 1977 is likely to be strongest in durable manufacturing,particularly in the automobile sector. Plant and equipment modificationsfor producing lighter small and intermediate-sized cars as well as forgeneral modernization appear to be the underlying factors here. Othersectors where new investment should grow rapidly are nonelectrical37