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The business situation.

FINAL estimates for the third quarter of 1991 show that real gross domestic product (GDP) increased at an annual rate of 1.8 percent; preliminary estimates had shown a 1.7-percent increase (table 1). (1) Personal consumption expenditures, net exports, and government purchases were revised up slightly; residential and nonresidential fixed investment and the change in business inventories were revised down slightly. The final estimate of the third-quarter increase in real gross domestic purchases was unchanged from the preliminary estimate of a 3.4-percent increase.

The final estimate of the third-quarter increase in real gross national product (GNP) was unchanged from the preliminary estimate of a 2.0-percent increase. GNP equals GDP plus net receipts of factor income from the rest of the world. In the final estimate of GNP, the small upward revision in GDP was offset by a small downward revision in net receipts of factor income.

Corporate Profits

Profits from current production--profits before tax plus inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj)--increased $2.6 billion in the third quarter of 1991 after increasing $1.4 billion in the second quarter (table 2). The third-quarter increase was more than accounted for by domestic profits of financial corporations (up $2.2 billion) and profits from the rest of the world (up $1.3 billion); domestic profits


of nonfinancial corporations decreased $0.9 billion, reflecting a decrease in profits per unit.

Cash flow from current production, a profits-related measure of internally generated funds available to corporations for investment, decreased $2.6 billion. The ratio of cash flow to nonresidential fixed investment increased to 77.5 percent because nonresidential fixed investment decreased proportionately more than cash flow.

Profits by industry.--Profits before tax (PBT) with IVA is the best available measure of industry profits because estimates of the CCAdj by industry do not exist. For domestic industries, PBT with IVA decreased $4.0 billion. The decrease was more than accounted for by decreases in trade and in the transportation and public utilities group. Manufacturing profits increased $1.2 billion, mainly reflecting improved earnings in chemicals and in motor vehicles.

Domestic profits of financial corporations increased $1.4 billion, mainly reflecting improved earnings of savings and loan associations and of property and casualty insurance companies.

Profits from the rest of the world increased $1.3 billion. This component measures inflows of profits to U.S. corporations from their foreign affiliates less outflows of profits to foreign corporations from their U.S. affiliates. Inflows increased $3.4 billion, and outflows increased $2.1 billion. Both petroleum and nonpetroleum affiliates contributed to the increase in inflows. The increase in outflows was more than accounted for by U.S. affiliates of corporations in Australia and Japan.

Profits before tax and related measures.--PBT increased $12.0 billion. The difference between the $2.6 billion increase in profits from current production and the $12.0 billion increase in PBT reflected a decrease in the IVA that was partly offset by an increase in the CCAdj.

The IVA is an estimate of inventory profits with the sign reversed. Inventory profits increased $14.7 billion, reflecting an increase in prices of inventoried goods, especially petroleum. The Producer Price Index for crude petroleum increased at an annual rate of 21.9 percent (not seasonally adjusted) in the third quarter.

Table 2.--Corporate Profits
 Level Change from pre-
 ceding quarter
 1991:III 1991:II 1991:III
 Billions of dollars
Profits from current production 306.1 1.4 2.6
 Domestic 243.1 14.2 1.4
 Financial 37.5 2.2 2.2
 Nonfinancial 205.5 12.0 -.9
 Rest of the world 63.0 -12.9 1.3
 Inventory valuation adjustment -4.8 3.2 -14.7
 Capital consumption adjustment -4.8 3.2 5.3
 Profits before tax 318.2 -2.9 12.0
 Profits tax liability 128.6 4.1 5.1
 Profits after tax 189.6 -7.0 6.9
Profits by industry:
 Profits before tax with IVA 313.4 .4 -2.7
 Domestic 250.4 13.2 -4.0
 Financial 43.5 1.4
 Nonfinancial 206.9 11.3 -5.4
 Manufacturing 84.1 7.9 1.2
 Trade 44.6 1.6 -2.3
 Transportation and public
 utilities 44.3 3.5 -4.9
 Other 33.9 -1.8 .6
 Rest of the world 63.0 -12.9 1.3
 Receipts (inflows) 62/9 -11.2 3.4
 Payments (outflows) -.1 1.7 2.1
Unit prices, costs, and profits of
 domestic nonfinancial
 Unit price 1.138 0.006 0.003
 Unit labor cost .765 .003 .002
 Unit nonlabor cost .297 -.001 .002
 Unit profits from current
 production .076 .004 -.001
NOTE.--Levels of these and other profits series are found in
1.14, 1.16, 6.16C, and 7.15 of the "Selected NIPA Tables."
IVA Inventory valuation adjustment

(1) Quarterly estimates in the national income and product accounts are expressed at seasonally adjusted annual rates, and quarterly changes are differences between these rates. Quarter-to-quarter percent changes are annualized.
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Title Annotation:corporate profits, 3d quarter 1991
Publication:Survey of Current Business
Date:Dec 1, 1991
Previous Article:Pollution abatement and control expenditures, 1987-89.
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