ECONOMIC

In early 1974 the Commerce Department released a survey which showedthat businessmen were planning a rise of 12 percent in capital expendituresin the coming year. The rise was particularly large for manufacturing—17percent—and planned increases within manufacturing were above average(21 percent) for materials-producing industries. The Commerce Departmentsurvey is broadly consistent with a McGraw-Hill survey, which was runabout 2 months earlier, projecting an overall rise of 14 percent from 1973to 1974.Neither of these surveys sheds any light on the effect of the energy crisison investment plans; and because of variations in sample coverage and forother reasons, the difference in results between the two surveys is not consideredsignificant. The Council believes that on balance the energy crisismay result in some reduction in business purchases of cars and trucks, butaside from this the negative and positive effects of the energy crisis on investmentwill be roughly offsetting. Some industries directly affected by the crisishave already cut back investment (airlines, for example), while some firmsin other industries may be holding back on commitments until they understandthe implications that the current crisis holds for future fuel supplies-.On the other hand, the crisis is stimulating capital outlays to support thesearch for new energy sources in this country, and conversions to other typesof fuel will entail new capital expenditures.InventoryInvestmentInventory investment is likely to be a little higher this year than in 1973—perhaps by $2 billion. In the final quarter of 1973 there was a very largeincrease in inventory accumulation, a good part of which represented a riseof retail stocks of new cars. Even so, total nonfarm stocks relative to totaloutput measured in real terms at the end of 1973 were low, gauged by post-World War II experience. The first half of this year should see a working offof unwanted automobile stocks at the same time that other industries continueto accumulate inventories in an effort to restore more normal relationshipsbetween stocks and output.ResidentialConstructionHousing starts in the final quarter of 1973 appeared to be reflecting theeffects of the stringency in mortgage markets last summer, and possibly temporaryeffects arising out of the energy crisis. Very late in the year there werereports that builders were uncertain about the impact of reduced fuel supplieson new construction, while potential buyers of homes in outlying areaswere hesitant because of uncertainty about the availability of gasolinefor extended commuting. But this, and the extent to which homeownerswere making new expenditures for better insulation of their homes, cannotbe considered hard information. While there is no assurance about improvedenergy supplies, the coming months should at least dispel the present uncertaintyand permit those builders and those consumers who can buy andrent new homes to make decisions.44