ECONOMIC

efunds must have contributed to the bulge, which was pronounced in durablegoods.Despite last year's large price rise, real personal consumption expendituresfor 1973 were up some 5*4 percent over 1972. This may be compared to the6 percent real rise in 1972 and an average rise of 4 percent in the post-World War II years. Real spending in all major categories increased exceptfor food expenditures, which declined by about 2/2 percent.In aggregate, real consumption gains after the first quarter were comparativelysmall, and the large increases in expenditures after early 1973 wereabsorbed mainly in higher prices. Several factors seem to have been at workhere. Even before the fourth quarter there was some softening in auto demandfrom the exceptionally high levels of sales (12.5 millon unit annualrate) reached in the first quarter, although reports were common in the springand early summer that shortages of parts were holding back production andsales of automobiles. A leveling out in real purchases of durable goods otherthan autos after an exceptional rise early in the year may have been relatedto the decrease in housing. Real food consumption also declined after thefirst quarter because of the reduction in domestic output, the increase in exports,higher prices, and the shift to lower-cost foods. Whether the extraordinaryincreases in food prices also had an adverse effect on other typesof spending taken as a whole is not clear. The saving rate did not changemuch. The question is complicated by the fact that the higher food priceswere paid largely to American farmers, whose additional purchases of nonfooditems could partly offset any reduction in such expenditures by the restof the population. In aggregate, real consumer outlays for all personal consumptionexcept durables and food rose at an annual rate of 5 percent fromthe first to the fourth quarter of 1973.NET EXPORTSA major element in the big expansion of demand during 1973 was thechange in our net export position. In the fourth quarter of 1972 the UnitedStates was a net importer of goods and services at the annual rate of $3.5billion. In the fourth quarter of 1973, net exports were at the annual rate of$8.0 billion. This swing of $11.5 billion was equal to 8.5 percent of theincrease in spending during 1973. It exceeded the acceleration in total spendingfrom 1972 to 1973; that is, if net exports are excluded, the rise in totalspending is changed to 10.7 percent in 1972 and 10.3 percent in 1973.Not all of the increase of net exports may have been a net addition to totalspending, since the financing of the net exports may have reduced somedomestic spending. On the other hand, the direct effect of the increase innet exports would have a multiplied effect on total spending, becausethe initial effect would increase incomes in the United States and raiseconsumption.The increase in net exports resulted from three developments. First, therewas a boom in the rest of the industrial world, far exceeding expectations(Chart 2). Second, low food supplies in the rest of the world boosted the55