ECONOMIC

The 11.5 percent increase in nominal GNP fron calendar 1972 to calendar1973 was the largest annual rise in 22 years. It featured a dramaticshift from deficit to surplus in net exports, as well as unusually strongdemand by consumers, especially for durable goods; by business for newplant and equipment; and by State and local governments. There is alsoreason to believe that inventory demand was strong last year but that supplyconditions did not permit this demand to be satisfied. Federal purchases andhousing rose less than average and decreased in real terms (Table 2).Somewhat over half of the rise in demand from 1972 to 1973 was matchedby increased physical volume, the 5.9 percent increase coming quite closeto the 1972 rise and exceeding the long-term average of about 4 percent(Table 2). The inflation component of the rise in money GNP acceleratedsignificantly from the 3.2 percent rate of 1972 and the 2.7 percentaverage of the past 25 years.NONRESIDENTIAL FIXED INVESTMENTLast year's rise in nonresidential investment extended the upturn thatbegan in 1971 after a year of declining real outlays. The investment expansiongathered strength in late 1971, when rising production increasedcapacity requirements and accelerated the rise in internal funds. The liberalizeddepreciation regulations and investment tax credit of late 1971 helpedto bolster the rise in cash flow. The exceptionally large increases in outputduring late 1972 and early 1973, coinciding with similar production increasesabroad, put severe pressure on domestic capacity in several industries,especially those producing basic materials. In view of these pressures it isnot surprising that manufacturing firms, with a 21 percent rise, dominatedlast year's increase in plant and equipment outlays.TABLE 3.—Changes in manufacturing plant and equipment outlays and value of starts, 1971to 1973IndustryPercent changeTotal outlays 2Materials-producing industries 3Primary metals.._PaperChemicalPetroleum refining...RubberTextile..Stone, clay, and glassAllotherTotal starts.._.26-1 2710-2229204137258458251 Preliminary. Expenditures include anticipated outlays for fourth quarter 1973. For starts, fourth quarter 1973 wasassumed by the Council of Economic Advisers to be equal to average of second and third quarters of 1973.2 As published by the Department of Commerce, Bureau of Economic Analysis. The two groups "materials-producing"and "all other" will not add up to the Commerce total because nonmanufacturing petroleum outlays ordinarily includedin petroleum in this particular survey have been excluded by the Council of Economic Advisers from each group.3 Includes lumber not shown separately.* Less than 0.05 percent.Source: Department of Commerce, Bureau of Economic Analysis (except as noted).51