ECONOMIC

Relative price movements were apparently important in the real consumptionof some nondurable items too. In particular, food prices were virtuallyconstant throughout 1976 and helped the real value of food consumption torise 5.2 percent for the year even though real incomes grew only 4.1 percent.Energy consumption was also significantly affected by relative price movements,as noted elsewhere in this chapter.BUSINESS FIXED INVESTMENTReal business fixed investment increased 4 percent last year, about theamount forecast in last year's Report. From lows reached in the second halfof 1975 real business fixed investment grew at an 8J/2 percent averageannual rate over the first 3 quarters. Largely because of the Ford MotorCompany strike, growth slowed to a 1 percent annual rate in the fourthquarter. Real investment, apart from motor vehicles, rose at substantiallybetter than a 10 percent annual rate in that quarter.Probably most important in starting the recovery of investment were theoptimistic sales expectations stimulated by the rapid increase in consumptionexpenditures through 1975 and early 1976. An additional thrust camefrom a much improved cash flow and somewhat lower interest rates, particularlyfor firms with lower credit ratings. Rapidly rising labor and energy costsrelative to fixed investment costs have also provided an incentive to invest inplant and equipment. The increases in the investment tax credit in 1975 furtherenhanced the after-tax profitability of equipment investment.Plant and equipment expenditures by nondurable goods manufacturersincreased more rapidly in 1976 than the expenditures by durables manufacturers.Industries showing strong growth include motor vehicles, textiles,food, paper, and electric utilities (Table 9).TABLE 9.—Changes in plant and equipment expenditures, 1974—76[Percent change]Industry1974actual1975actual1976expected 1All industries12.70.37.5Manufacturing__21.04.210.5Durable goods 2 _Machinery, except electricalMotor vehicles17.529.218.0-3.42.0-23.48.011.620.3Nondurable goods 2Food including beveragesTextilesPaper24.74.69.938.811.6.2-21.014.312.519.826.517.8Nonmanufacturing 27.6-2.45.3MiningElectric utilities16.210.619.4-3.64.711.41 Based on actual expenditures in 1975 and expected expenditures in 1976 (actuals for first 3 quarters and expected forfourth quarter).2 Includes some industries not shown separately.Source: Department of Commerce, Bureau of Economic Analysis.61224-250 O - 7 7 - 5