ECONOMIC

HOUSINGIn early 1973 there were indications that the 3-year expansion inhousing starts was coming to an end. Sales of single-family homes had grownlittle after the summer of 1972; and vacancy rates of rental housing, whilenot high, had been edging up. During the first half of 1973 the inflow ofsavings into thrift institutions showed a pronounced decline compared to1972, and lenders consequently reduced the volume of their mortgage commitments.The situation became acute in July and August, when institutionsexperienced a net outflow of funds, although that was reversed late in theyear. A further discussion of mortgage markets appears below.From the first to the third quarter, starts fell from a seasonally adjustedannual rate of 2.4 million units to 2.0 million. In the final quarter, however,the summer stringency in mortgage markets was reflected in a precipitousdecline in starts, which dropped to an annual rate of 1.57 millionunits. Starts for 1973 as a whole, not counting mobile homes, were some13 percent below the 1972 total.Despite the record volume of completions, the rise in housing vacanciesfrom 1972 to 1973 remained moderate: 0.2 percentage point for rentalunits and 0.1 percentage point for homeowner units. Although both of theseare up from the troughs reached in 1970 and 1971, they are low by thestandards of the 1960's, mainly because household formation and losses fromthe housing inventory (due to demolitions and other factors) have remainedvery high.CONSUMER SPENDINGConsumer demand rose sharply from 1972 to 1973 under the influence ofhigher incomes. Rising wage and salary payments in the private sector andstriking gains in incomes of farm proprietors played major roles in the 10*4percent rise in personal income, the largest since 1951. Transfer paymentswere also up substantially for the year as a whole, mainly because of the 20percent increase in social security benefits that became effective in the finalquarter of 1972, although that influence was diminished by the rise insocial security taxes starting in January 1973. Under ordinary circumstancesdisposable income (after tax) should have risen less than personal income,but taxes rose less than usual because of the refund early in 1973 of some $9billion in personal income taxes overwithheld in 1972; this figure also reflectssmaller than usual final settlements on 1972 tax liabilities. The refund contributedabout 1 percentage point to the 10% percent increase in disposableincome.The 11 percent rise in consumer spending was accompanied by littlechange in the saving rate for the year as a whole. In 1970 and 1971, when theeconomy was sluggish and the recovery weak, the rate had been very high,the 8.1 percent annual average for each year being the highest since justafter the end of World War II. The vigorous recovery seems to have been adecisive factor in the decline in the saving rate to 6.2 percent in 1972. However,decisions by consumers to spend a still larger fraction of their disposable53