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The business situation.

THE "FINAL" estimate of growth in real gross domestic product (GDP) for the first quarter Of 1993 is 0.7 percent, 0.2 percentage point lower than the "preliminary" estimate reported in last month's SURVEY OF CURRENT BUSINESS (table 1).(1) Downward revisions in personal consumption expenditures (PCE) and change in nonfarm inventories more than offset upward revisions in fixed investment, net exports, and government purchases.

[TABULAR DATA 1 OMITTED]

The downward revision in PCE was widespread, with the largest downward revision in durable goods--primarily in purchases of new cars and trucks. For change in nonfarm inventories, the largest downward revision was in inventories of merchant wholesalers. For fixed investment, more than two-thirds of the upward revision was in nonresidential fixed investment--largely in the autos and trucks component of producers' durable equipment. For net exports, the upward revision was more than accounted for by imports--largely travel services. For government purchases, the upward revision was more than accounted for by State and local government.

The final estimate for real gross domestic purchases shows a 2.4-percent increase, 0.3 percentage point lower than the preliminary estimate. The downward revisions in PCE and change in nonfarm inventories more than offset upward revisions in fixed investment and government purchases.

The final estimate for the fixed-weighted price index for gross domestic purchases shows an increase Of 3.5 percent, the same as the preliminary estimate; the final estimate for the fixed-weighted price index for GDP shows an increase Of 4.3 percent, 0.1 percentage point higher than the preliminary estimate.

Alternative measures.--In the first quarter, the chain-type annual-weighted measure of real GDP increased 0.3 percent, 0.4 percentage point lower than the fixed-weighted measure; most of the difference was accounted for by computers and peripheral equipment (which appears in several components).(2) In the fourth quarter, the chain-type annual-weighted measure of real GDP increased 4.3 percent, also 0.4 percentage point lower than the fixed-weighted measure; the difference was widespread among components. These were the first two quarters since 1986 in which the differences exceeded 0.3 percentage point.

Gross national product (GNP).--Real GNP increased 1.0 percent in the first quarter (table 2). GNP equals GDP plus receipts of factor income from the rest of the world less payments of factor income to the rest of the world. In the first quarter, receipts increased $2.5 billion, and payments decreased $1.1 billion. The increase in receipts was more than accounted for by profits of foreign affiliates of U.S. corporations.

[TABULAR DATA 2 OMITTED]

In the first quarter, real GNP on a command-basis increased more than real GNP-2.1 percent, compared with 1.0 percent-reflecting an improvement in the terms of trade.(3) In the fourth quarter, command-basis GNP had increased less than GNP--3.4 percent, compared with 4.1 percent--reflecting a worsening in the terms of trade.

Corporate Profits

Profits from current production--profits before tax (PBT) plus inventory valuation adjustment (IVA) and capital consumption adjustment (ccadj)--decreased $4.3 billion in the first quarter after increasing $54.4 billion in the fourth (table 3).

[TABULAR DATA 3 OMITTED]

Profits from the domestic operations of nonfinancial corporations decreased $18.9 billion after increasing $43.0 billion; the decrease mainly reflected a drop in unit profits that resulted when unit costs (labor and nonlabor) increased more than unit prices. Profits from the domestic operations of financial corporations increased $8.6 billion after increasing $15.3 billion, and profits from the rest of the world increased $6.1 billion after decreasing $4.0 billion.

Cash flow from current production, a profits-related measure of internally generated funds available to corporations for investment, decreased $2.2 billion after increasing $20.5 billion.

In recent quarters, the ratio of cash flow to non-residential fixed investment has been more than go percent, about 20 percentage points higher than its average level in the 1980's. This high level, which partly reflects relatively weak investment spending, suggests that investment could increase substantially before cash flow would become a constraint.

Profits by industry.--PBT with iva is the best measure of industry profits because estimates of the ccadj by industry are not available. At the aggregate level, this measure presents much the same picture as does profits from current production. For the domestic operations of nonfinancial corporations, PBT with iva decreased $21.7 billion after increasing $35.0 billion; for the domestic operations of financial corporations, it increased $8.8 billion after increasing $15.0 billion.

For all major groups of nonfinancial industries except the transportation and public utilities group, profits decreased in the first quarter. Manufacturing profits dropped sharply; profits were down in all manufacturing industries except motor vehicles, food, and petroleum. Trade profits also dropped sharply; the drop was mainly at the wholesale level.

Insurance carriers have dominated recent movements in profits of financial corporations, which increased in the fourth and first quarters after decreasing sharply in third; the third-quarter decline was the result of benefit claims associated with Hurricanes Andrew and Iniki. The first-quarter increase was limited by benefit claims associated with the bombing of the World Trade Center in February and by claims associates with a severe storm on the East Coast in March.

Profits from the rest of the world increased $6.1 billion. This component of profits measures receipts of profits from foreign affiliates of U.S. corporations less payments of profits by U.S. affiliates of foreign corporations. Receipts jumped $10.3 billion, and payments increased $4.2 billion. Much of the increase in receipts was accounted for by manufacturing and finance affiliates in the United Kingdom; the manufacturing increase reflected a very sharp reduction in restructuring charges taken against income. Auto manufacturing affiliates in Canada also contributed to the increase in receipts.

PBT and related measures.--PBT increased $3.6 billion. The difference between the $4.3 billion decrease in profits from current production and the $3.6 billion increase in PBT mainly reflects a $10.4 billion decrease in the iva. The iva is an estimate of inventory profits with the sign reversed. The increase in inventory profits reflected a step-up in the rate of increase in prices of inventoried goods. The Producer Price Index, a major source for inventory prices, increased at an annual rate of 1.6 percent (not seasonally adjusted) in the first quarter after no change in the fourth.

Looking Ahead...

* Annual Revision of the National Income and Product Accounts. Revised estimates for the period beginning with the first quarter of 1990 will be presented in the August Survey. The August 31 news release on gross domestic product will contain a summary of the revision. Annual revisions are usually released in july, but, as announced earlier this year, the schedule has been delayed one month because Of BEA'S move this summer to a new location.

* Detailed Estimates of Direct Investment. Detailed estimates of the historical-cost positions and related balance of payments flows for U.S. direct investment abroad and foreign direct investment in the United States, which are usually published in August, will appear in the July Survey. (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. Real, or constant-dollar, estimates are expressed in 1987 dollars and are based on 1987 weights. (2) For a discussion of BEA'S alternative measures, see "Alternative Measures of Change in Real Output and Prices, Quarterly Estimates for 1959-92," Survey of Current 73 (March 1993): 31-41. (3.) In estimating real GNP, the current-dollar value of exports of goods and services is deflated by export prices, the current-dollar value of imports of goods and services is deflated by import prices, and the current-dollar values of receipts and of most payments of factor income are deflated by the implicit price deflator for net domestic product. In estimating command-basis measure of U.S. production in terms of its purchasing power--the current-dollar values of exports of goods and services and of receipts of factor income are deflated by the implicit price deflator for imports of goods and services and payments of factor income.
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Title Annotation:aggregate production and profit statistics for first quarter 1993
Author:Moran, Larry R.; Larkins, Daniel
Publication:Survey of Current Business
Date:Jun 1, 1993
Words:1362
Previous Article:U.S. international transactions, first quarter 1993.
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