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The Business Situation.

THE "FINAL" estimate of growth in real gross domestic product (GDP) for the third quarter of 1992 is 3.4 percent, 0.5 percentage point lower than the "preliminary" estimate reported in last month's Survey of Current Business (table 1).(1) The downward revision was more than accounted for by revisions in the change in business inventories and in net exports of goods and services. Revised Census Bureau data for September was the major cause of these revisions; for inventories, the downward revision was primarily in wholesale and retail trade, and for net exports, the revision was primarily the result of an upward revision in merchandise imports. Residential fixed investment and merchandise exports also were revised downward, but only slightly, personal consumption expenditures was not revised; and nonresidential fixed investment and government purchases--mostly Federal Government purchases--were revised upward. [TABULAR DATA 1 OMITTED]

The "final" estimate for real gross domestic purchases showed a 4.1-percent increase, 0.2 percentage point lower than the "preliminary" estimate. (Unlike GDP, gross domestic purchases excludes exports of goods and services and includes imports of goods and services.)

The "final" estimate for the fixed-weighted price index for gross domestic purchases showed an increase of 2.5 percent, the same as the "preliminary" estimate; the "final" estimate for the fixed-weighted price index for GDP showed an increase of 2.1 percent, 0.1 percentage point lower than the "preliminary" estimate.

Gross national product (GNP).--Real GNP increased 3.9 percent in the third 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 third quarter, payments decreased more than receipts. About two-thirds of the decrease in payments was in interest payments, and about one-third was in profits of U.S. affiliates of foreign corporations. [TABULAR DATA 2 OMITTED]

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 value of most factor income is deflated by the implicit price deflator for net domestic product. In estimating command-basis GNP--a measure of U.S. production in terms of its purchasing power--the current-dollar value of exports of goods and services and receipts of factor income is deflated by the implicit price deflator for imports of goods and services and payments of factor income. In the third quarter, command-basis GNP increased more than GNP--4.7 percent, compared with 3.9 percent--reflecting an improvement in the terms of trade. In the second quarter, command-basis GNP had increased less than GNP--0.3 percent, compared with 0.7 percent--reflecting a deterioration 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 $14.3 billion, to $374.1 billion, in the third quarter after increasing $4.4 billion in the second (table 3). Profits from the domestic operations of financial corporations decreased $20.6 billion in the third quarter, reflecting the effects of Hurricanes Andrew and Iniki. Profits from the domestic operations of nonfinancial corporations increased $2.3 billion, reflecting an increase in the real gross product of these corporations. Profits from the rest of the world increased $4.1 billion. [TABULAR DATA 3 OMITTED]

Cash flow from current production, a profits-related measure of internally generated funds available to corporations for investment, increased $9.5 billion after decreasing $1.2 billion. The increase in cash flow, together with a small decrease in (current-dollar) nonresidential fixed investment, lifted cash flow as a percentage of nonresidential investment to 90.7 percent from 88.8 percent.

Hurricanes Andrew and Iniki substantially reduced profits in the third quarter. Although many of the effects of the hurricanes are embedded in the source data used to estimate profits and thus cannot be easily estimated, some of the effects are more apparent: Casualty insurance losses of $60 billion were partly offset by about $14 billion of reinsurance payments from foreign insurers to domestic insurance companies.(2)

Profits by industry.--Profits in manufacturing increased $2.8 billion in the third quarter after increasing $17.7 billion in the second.(3) Manufacturers of electronic and other electric equipment and of "other" durable goods posted the largest increases; most other manufacturers posted decreases.

Profits in trade decreased $3.0 billion in the third quarter after increasing $6.8 billion in the second; the decrease was at the retail level and was widespread. Profits in transportation and public utilities decreased $1.6 billion after decreasing $7.2 billion; most of the decrease was accounted for by utilities, especially electric utilities.

Profits from the rest of the world increased $4.1 billion in the third quarter after decreasing $7.7 billion in the second. 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 increased $1.3 billion, reflecting increased receipts from petroleum and manufacturing affiliates. Payments decreased $2.8 billion, reflecting decreased payments by petroleum and other nonmanufacturing affiliates.

PBT and related measures.--PBT decreased $22.7 billion in the third quarter. The difference between this decrease and the $14.3 billion decrease in profits from current production reflects changes in the IVA and in the CCAdj.

The IVA is an estimate of inventory profits with the sign reversed. Inventory profits decreased $5.8 billion, reflecting a slowdown in the rate at which prices of inventoried goods increased. The Producer Price Index, a major source for inventory prices, slowed to a 1.9-percent increase (annual rate) in the third quarter from a 4.5-percent increase in the second.

The CCAdj is the difference between the predominantly tax-based depredation measure that underlies PBT and BEA's estimate of the consumption of fixed capital. The CCAdj increased $2.7 billion in the third quarter. (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 annaulized. Real, or constant-dollar, estimates are expressed in 1987 dollars and are based on 1987 weights. (2) The losses by insurance carriers are mainly reflected in profits of financial industries; however, the industry estimates of profits generally are based on consolidated company reports, so profits of nonfinancial industries are also affected because some nonfinancial corporations own insurance companies. (3) PBT with IVA is used as the measure of industry profits because estimates of the CCAdj by industry are not available.
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Title Annotation:third quarter of 1992
Publication:Survey of Current Business
Date:Dec 1, 1992
Words:1101
Previous Article:Gross product of U.S. affiliates of foreign direct investors, 1987-90.
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