Economic Report of the President

expenditures continued the virtually unbroken decline that hadbegun after the fourth quarter of 1978. Over this period purchases ofreal consumer durables declined 16.3 percent, with the steepest dropconcentrated in the second quarter of 1980. A long and gradual slideculminating in 1 quarter of very steep decline was also the patternduring 1974-75; the peak-to-trough decline then was also 16.3 percent.During the last half of 1980 real consumer durable expendituresregained nearly one-half of the second quarter's decline.Growth in the third quarter was at an annual rate of 21.9 percent.Growth in the fourth quarter was at a rate near 7 percent. Automotivepurchases dominated quarter-to-quarter movements in consumerdurables during the year, leading the first-half declines as wellas the last-half gains. By year-end car sales were running at a 9-millionunit rate, but sales were apparently being held back by a combinationof the high interest rates on consumer loans and high carprices. Real automotive purchases fell 12.9 percent during 1980 o as awhole. Similar weakness was evident in real consumer demand forother durable goods, which fell 4.0 percent over the 4 quarters of1980.Other Consumption. Real nondurable goods consumption fell 1.2 percentduring 1980. Purchases of gasoline, oil, and other fuels fell 3.2percent. In part this reflected the effects of the recession, but muchof the decline in these energy demands was due to conservation effortsin response to sharply higher prices. By year-end the consumptionof these goods was 11 percent below the peak levels set in 1978.Real consumption of services grew at a sluggish 2.8 percent overthe 4 quarters of 1980, down from the 1979 pace of 3.6 percent.Service consumption tends to be much more stable than goods consumptionover the business cycle because many of these expenditures,such as housing and medical care, cannot be delayed or postponed.Nevertheless, important cyclically sensitive components ofservice consumption were quite weak during the year. Transportationservices, for instance, fell at an annual rate of 11.9 percent in thesecond quarter and 2.0 percent over the entire year.Residential InvestmentThe path of real investment in residential structures over the last 2years was like that of consumer durables. It was marked by a slowand gradual slide throughout 1979, ending with a very sharp declinein the spring of 1980. Residential construction picked up rapidlythereafter, but at year-end housing starts had leveled off in responseto higher mortgage interest rates. The pattern of housing activity in1979 and 1980 reflected new developments in housing finance. Asnoted in Chapter 2, mortgage lenders now compete for loanablefunds on a more even footing with other lenders. Consequently, the140