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The Business Situation.

THE ECONOMY's uneven expansion continued in the first quarter of 1993, according to the advance estimates of the national income and product accounts (NIPA's). The growth of real gross domestic product (GDP) slowed to 1.8 percent in the first quarter from 4.7 percent in the fourth (chart 1).(1) The deceleration reflected slower growth in the production of goods and a downturn in the production of structures; the production of services increased a little more in the first quarter than in the fourth (table 1).

[TABULAR DATA 1 OMITTED]

The growth of real gross domestic purchases also slowed, to 2.2 percent in the first quarter from 4.4 percent in the fourth. (Unlike GDP, gross domestic purchases excludes exports of goods and services and includes imports of goods and services.) Final sales to domestic purchasers was virtually unchanged in the first quarter after increasing 4.8 percent in the fourth; inventory investment swung up sharply (table 2). Within final sales, personal consumption expenditures, residential investment, and nonresidential fixed investment posted small-to-moderate increases in the first quarter after posting substantial increases in the fourth. These first-quarter increases were offset by a sharp decrease in government purchases; national defense purchases dropped 25.5 percent, its biggest drop in the 21 years that constant-dollar defense purchases have been separately estimated in the NIPA's.

[TABULAR DATA 2 OMITTED]

The fixed-weighted price index for gross domestic purchases increased 3.4 percent in the first quarter after increasing 2.9 percent in the fourth. The fixed-weighted price index for GDP increased 4.2 percent after increasing 3.4 percent. Most of the step-up in both measures was due to the onetime effect of a pay raise for Federal military and civilian personnel.

Motor vehicles.--The growth of motor vehicle output slowed in the first quarter, and sales turned down. Inventories turned up sharply.

Output increased 16.7 Percent in the first quarter after increasing 23.6 percent in the fourth (table 3). Truck output, which increased 24.2 percent after jumping 85.0 percent, accounted for the slowdown. Car output increased 11.7 percent after decreasing 4.3 percent.

[TABULAR DATA 3 OMITTED]

Sales fell 14.1 percent after increasing 30.8 percent. Cars and trucks both contributed to the downturn. Car sales dropped 17.0 percent after increasing 13.0 percent, and truck sales decreased 9.7 percent after leaping 63.8 percent.

Sales to consumers were weak; consumer purchase's of new cars and of trucks both turned down. The weakness reflected a slowdown in the rate of growth of income and the discontinuation of many of the sales-incentive programs that manufacturers had used to boost sales at the end of the fourth quarter.

As a result of the substantial increase in inventories, the stock of motor vehicle stocks was high at the end of the first quarter. The unit inventory-sales ratio for new cars increased from 2.6 to 2.9, the highest it has been since the fourth quarter of 1989; traditionally, the industry has targeted a ratio of about 2.4.

Prices

As noted earlier, the fixed-weighted price index for gross domestic purchases increased 3.4 percent in the first quarter after increasing 2.9 percent in the fourth (table 4). Almost all of the step-up was due to a 3.7-percent pay raise for Federal military and civilian personnel.(2) The price of gross domestic purchases less food and energy increased 3.6 percent after increasing 3.2 percent (chart 2).

[TABULAR DATA 4 OMITTED]

Prices of personal consumption expenditures increased 3.4 percent after increasing 3.0. The biggest step-up was in prices of clothing and shoes. Food and energy prices both increased at about the same rates in the first quarter as in the fourth. Prices of beef and veal, of pork, and of eggs increased more in the first quarter than in the fourth; however, prices of fresh fruit turned down, and prices of processed fruit decreased more in the first quarter than in the fourth. Prices of gasoline and oil turned up, prices of electricity and gas turned down, and prices of fuel oil and coal decreased less in the first quarter than in the fourth.

Prices of nonresidential fixed investment increased 1.6 percent after increasing 0.6 percent. Prices of producers' durable equipment posted a small increase after a small decrease; prices of industrial and transportation equipment turned up, and the price of information processing equipment decreased slightly in both quarters. Prices of nonresidential structures increased less in the first quarter than in the fourth.

Prices of residential investment increased 3.5 percent after increasing 4.4 percent. The first-quarter increase was close to the average rate of increase in the past four quarters, 3.6 percent, and substantially above the average rate of increase in the eight quarters before that, 0.7 percent.

Prices of government purchases increased 4.3 percent after increasing 3.4 percent; the step-up was primarily due to prices paid by the Federal Government. These prices increased 7.2 percent after increasing 4.3 percent; the step-up was attributable to the 3.7-percent pay raise for Federal employees. Prices paid by State and local governments increased 2.0 percent after increasing 2.8 percent; the slowdown reflected a downturn in the prices of structures and a deceleration in the prices of services.

The price index for GDP, which measures the prices paid for goods and services produced in the United States, increased 4.2 percent after increasing 3.4 percent. This index, unlike that for gross domestic purchases, includes prices of exports and excludes prices of imports. The step-up in GDP prices was larger than the step-up in prices of gross domestic purchases because prices of exports increased more, and prices of imports decreased more, in the first quarter than in the fourth.

Personal income

Real disposable personal income (DPI) increased 2.7 percent in the first quarter after increasing 4.3 percent in the fourth (chart 3). The deceleration reflected a slowdown in current-dollar DPI, which increased 7.8 percent after increasing 5.7 percent. The personal saving rate increased 0.4 percentage point to 4.8 percent, reflecting a smaller increase in personal outlays than in DPI.

Personal income increased $75.8 billion after increasing $98.9 billion (table 5). The deceleration reflected slowdowns in wage and salary disbursements and in proprietors' income; transfer payments accelerated.

[TABULAR DATA 5 OMITTED]

Wage and salary disbursements increased $37.9 billion after increasing $46.4 billion. The slowdown was more than accounted for by a turnaround in bonus payments in private industry, which decreased $4.6 billion after jumping $10.8 billion. The first-quarter decrease was in the transportation equipment industry; the fourth-quarter jump was in transportation equipment and securities. (Accelerated bonus payments in the securities industry had amounted to $6.0 billion in the fourth quarter; typically, most bonuses in this industry are paid in january and are based on profits earned in the preceding year.) Government wages and salaries increased more in the first quarter than in the fourth; they were boosted by the Federal pay raise and by retirement incentive payments to U.S. Postal Service employees.

Farm proprietors' income increased $4.5 billion after increasing $16.6 billion. In the first quarter, Federal farm subsidies increased $6.6 billion, to 17.3 billion--the highest level in 5 years; the increase largely reflected final deficiency payments under the 1992 Acreage Reduction Program and advance deficiency payments under the 1993 program. Deficiency payments are made when the market price of a crop is, or is projected to be, below the Federal target price.) Farm proprietors' income excluding subsidies decreased after increasing; the decrease was more than accounted for by lower crop and livestock production. Nonfarm proprietors' income increased $7.6 billion after increasing $14.5 billion. The deceleration reflected slowdowns in retail trade and residential construction.

Personal interest income declined for the fifth consecutive quarter. The first-quarter decrease, the smallest in several quarters, reflected a leveling off in the decline in interest rates.

Rental income of persons increased $4.2 billion after increasing $7.2 billion. The slowdown was primarily due to $2.3 billion in uninsured losses of nonfarm residential property that resulted from a storm on the East Coast in March. (Such losses are treated as expenses in the calculation of rental income.)

Transfer payments increased $21.1 billion after increasing $13.9 billion. The step-up was due to cost-of-living adjustments (COLA'S) to benefits under social security and several other Federal retirement and income support programs; the COLA'S, which became effective in January, boosted transfer payments $10.8 billion in the first quarter.

Personal contributions for social insurance, which are subtracted in deriving the personal income total, increased $5.7 billion after increasing $3.3 billion. The first-quarter increase was boosted $3.1 billion by several program changes: An increase in the social security taxable wage base for employees from $55,500 to $57,600, an increase in the social security taxable earnings base for the self-employed, an increase in the medicare taxable wage base for employees from $130,200 to $135,000, and an increase in the monthly premium for supplementary medical insurance.

Personal tax and nontax payments increased $12.8 billion after increasing $14.8 billion. The slowdown reflected the effects of several changes in provisions of Federal income tax law as well as the slowdown in wages and salaries. Tax payments were reduced by an annual revision of the withholding tables to reflect the indexing provisions of the tax law and by a change that increased quarterly estimated tax payments in 1992 but that did not increase liabilities; tax payments were increased as a result of an Executive order (effective in March 1992) that reduced personal income tax withholding but that did not reduce tax liabilities.

Corporate Profits and Property Income in 1992

Profits from current production-profits before tax plus inventory valuation adjustment (IVA) and capital consumption adjustment (CCADJ)--increased $47.5 billion in 1992, to $393.8 billion, after decreasing $15.4 billion in 1991 (table 6). Profits in 1992 were 7.9 percent above their previous peak, reached in 1988.

[TABULAR DATA 6 OMITTED]

Profits from the domestic operations of nonfinancial corporations jumped $53.1 billion in 1992 after falling #18.4 billion in 1991. The upturn reflected swings in real gross product and in unit profits. The improvement in unit profits resulted from a modest increase in unit prices and small decreases in unit labor and nonlabor costs; in 1991, a larger increase in unit prices had been more than offset by increased costs.

Profits from the domestic operations of financial corporations decreased $3.1 billion in 1992 after increasing $2.2 billion. The decrease reflected losses incurred by insurance carriers in the wake of Hurricane Andrew, which struck Florida and Louisiana in late August, and Hurricane Iniki, which struck Hawaii in mid-September. (Most insurance carriers are classified in financial industries.)

Profits from the rest of the world decreased 2.5 billion after increasing so.8 billion. Both of these rather small changes resulted from larger, but partly offsetting, changes in receipts and payments.

Cash flow from current production, a profits-related measure of internally generated funds available to corporations for investment, increased $40.3 billion in 1992 after increasing $14.8 billion in 1991. Cash flow as a percentage of nonresidential fixed investment was 91.0 percent in 1992, up from 84.8 percent in 1991. In the 1980's, the ratio averaged 72.1 percent. The high level in recent years partly reflects weak investment spending; nonresidential fixed investment increased only 1.3 percent in 1992 after decreasing 6.3 percent in 1991.

Current-production measures of profits are not available for individual industries because estimates of the CCADJ by industry do not exist; profits before tax (PBT) with iva is the best available measure. For domestic operations of nonfinancial corporations, this measure of profits increased $33.1 billion in 1992 after falling $8.4 billion in 1991. Manufacturing and "other" nonfinancial profits rebounded strongly after decreasing in 1991, but trade profits increased less than half as much as in 1991, and transportation and public utilities profits turned down. Within manufacturing, the sharpest upturns were in motor vehicles and equipment (up $10.0 billion after falling $4.3 billion) and petroleum and coal products (up $1.7 billion after falling $6.9 billion).

Related measures.--PBT increased $36.9 billion after decreasing $20.7 billion. The difference between the increase in PBT and that in profits from current production in 1992 reflected an increase in the CCADJ that more than offset a decrease in the IVA.

The CCADJ is the difference between the predominantly tax-based depreciation measure that underlies PBT, on the one hand, and BEA'S estimate of the consumption of fixed capital, on the other. The CCADJ increased $21.1 billion in 1992 after decreasing $12.1 billion in 1991.

The IVA is an estimate, with the sign reversed, of the inventory profits that are included in PBT. Inventory profits increased $10.5 billion in 1992 after decreasing $17.3 billion in 1991, reflecting a step-up in the rate of increase of prices of inventoried goods that are held by corporations using non-LIFO inventory methods. For example, the Producer Price Index, a major source of information on inventory prices, increased 0.6 percent in 1992 after increasing 0.2 percent in 1991.

Property income

Corporate property income consists of net interest payments as well as profits from current production. For domestic nonfinancial corporations, net interest payments decreased $10.5 billion in 1992 after decreasing $5.6 billion in 1991.

Chart 4 and table 7 provide a perspective on the recent increases in both types of property income. From 1970 to 1990, both types trended up, but net interest, which increased at an average annual rate of 11.4 percent, generally increased much faster than profits, which increased at an average annual rate of 7.6 percent. As a result, the share of net interest in property income rose from 23.0 percent in 1970 to 37.5 percent in 1990. From 1990 to 1992, however, profits increased at an annual rate of 6.8 percent, while net interest decreased at a rate of 5.6 percent. The drop in net interest presumably reflects the ebbing of the wave of leveraged buyouts that were so prominent in the 1980's and efforts by corporations to restructure balance sheets to reduce debt.

[TABULAR DATA 7 OMITTED]

Further perspective on trends in property income can be gained by examining the relationship of property income to the stock of net reproducible assets and to domestic income. Net reproducible assets consist of fixed capital stock and inventories, both measured at current replacement cost; these assets increased only 1.2 percent in 1992-their smallest increase in the period covered by table 7. Domestic income is property income plus compensation of employees; it increased 4.1 percent in 1992 after increasing only 0.2 percent in 1991.

The ratio of property income to the value of net reproducible assets is the average rate of return on these assets. The use of property income, rather than profits alone, as the numerator of this ratio captures the total return to investment (profits plus interest) regardless of whether the investment was financed out of equity or debt.(3)

The ratio of property income to domestic income is property income's share of domestic income--that is, the fraction of domestic income that is not used to compensate labor. Property income's share is related to the rate of return by a third ratio--the ratio of domestic income to the value of net reproducible assets, which measures the average annual product per dollar of capital. (It should be noted that this ratio is not appropriate for use in productivity analysis; for productivity analysis, the denominator should measure capital services, not capital stock.)

The three ratios are plotted for 1970-92 in chart 5 and are reported, along with related ratios, for 1959-92 in table 8. Property income's rate of return (column 1) and its share of domestic income (column 6) appear to have shifted to lower levels around 1970. The rate of return fell from an average of 12.8 percent in 1959-69 to an average of 8.5 percent in 1970-9?; the share of domestic income fell from an average of 21.1 percent to an average of 16.6 percent. These decreases are traceable to profits; net interest's rate of return (column 5) and its share of domestic income (column 8) increased in 1970-92.

[TABULAR DATA 8 OMITTED]

In 1992, property income's rate of return and its share of domestic income rebounded from cyclical decreases in 1991 that took the ratios to their lowest levels in almost a decade. Higher profits were responsible for the increases in both ratios.

Changes in BEA Release Schedules

BEA'S move this summer to a new location necessitates some changes in the release dates for the national income and product accounts (NIPA) estimates, the state personal income estimates, and the composite indexes of leading, coincident, and lagging indicators.

NIPA estimates

In June, the following changes are made to the release dates:

From To

Gross domestic product, first quarter

1993 (final) June 30 June

Corporate profits, first quarter 1993
 (revised) June 30 June
Personal income and outlays, May 1993 July 1 June


In July, the advance NIPA estimates for the second quarter will be released as scheduled; however, the annual revision of the NIPA'S, usually released in July, will not be released until August when the preliminary estimates are released.

In August, the following changes are made to the release dates:

From To

Gross domestic product, second

quarter 1993 (preliminary) Sept. 1 Aug. 31

Corporate profits, second quarter 1993
 (preliminary) Sept. 1 Aug. 31
Personal income and outlays, July 1993 Sept. 2 Sept. 1


Regional estimates

Because BEA'S regional estimates depend upon its national estimates, the rescheduling of the annual NIPA revision to August will cause the following changes in the scheduled dates for State personal income:

From To

State per capita personal income,

1992 (revised) Aug. 24 Oct. 7

State personal income, second quarter

1993 Oct. 21 Nov. 18

Composite indexes

As a result of the earlier release dates for the NIPA estimates and to accommodate users by avoiding a Friday release, the following change is made to the scheduled release dates for the composite indexes of leading, coincident, and lagging indicators:

From To

Composite indexes of leading, coincident, and lagging

indicators, May 1993 July 2 June 29

Looking Ahead

* Changes in BEA Release Schedules. In addition to the changes in the scheduled dates for its national and regional news releases announced last month, BEA is making one change in the schedule for the composite indexes of leading, coincident, and lagging indicators. See page 10 for detail on the changes in release dates, including information on the change in schedule for the 1993 annual revision of the national income and product accounts.

* County and Metropolitan Area Personal Income. Estimates of county and metropolitan area personal income for 1989-91 will appear in next month's Survey. These estimates will incorporate the December 1991 comprehensive revision of the national income and products (NIPA'S), the July 1992 annual revision of the NIPA'S, and the August 1992 comprehensive revision of State personal income. They also will incorporate changes in the metropolitan area definitions that were released by the office of Management and Budget in December 1992.

Recruitment...

* Associate Director for International Economics. BEA expects to be recruiting for the position of Associate Director for International Economics in the very near future. This is a career reserved position in the Senior Executive Service, salary range: $92,900-$115,7-00. Applicants must meet all requirements of the Senior Executive Service. To obtain required application and qualification information, please contact the BEA Administrative office, (202) 523-0508. BEA is an Equal Opportunity Employer.

First-quarter 1993 Advance GDP Estimate: Source Data and Assumptions

The advance GDP estimate for the first quarter is based on the following major source data, some of which are subject to revision. (The number of months for which data were available is shown in parentheses.)

Personal consumption expenditures: Sales of retail stores (3) and unit auto and truck sales (3);

Nonresidential fixed investment. Unit auto and truck sales (3), construction put in place (2), manufacturers' shipments of machinery and equipment (3), and exports and imports of machinery and equipment (2);

Residential investment: Construction put in place (2) and housing starts (3);

Change in business inventories. Manufacturing and trade inventories (2) and unit auto and truck inventories (3);

Net exports of goods and services. Merchandise exports and merchandise imports (2);

Government Purchases: Military outlays (3), other Federal outlays (2), State and local construction put in place (2), and State and local employment (3);

GDP prices. Consumer Price Index (3), Producer Price Index (3), price indexes for nonpetroleum merchandise exports and imports (3), and values and quantities of petroleum imports (2).

In addition to incorporating the above source data, BEA makes assumptions for the source data that are not yet available. A table detailing these assumptions is available on the Department of Commerce's Economic Bulletin Board or by request from BEA; it is summarized here.

[TABULAR DATA A OMITTED]

BEA Estimates of Wages and Salaries for 1992

The annual change from 1991 to 1992 in the national income and product accounts (NIPA) estimate of wage and salary disbursements is about $15 billion less than the change in the U.S. total of the State estimates that appear in this issue of the Survey of Current Business. As explained below, the difference mainly reflects the incorporation in the State estimates of newly available source data that will be incorporated into the NIPA'S in the upcoming regular annual revision.

The NIPA estimate for 1992, which appears in table 2.1 of the "Selected NIPA Tables," is based primarily on monthly national data on employment, hours, and earnings from the Bureau of Labor Statistics (BLS) establishment survey. The State estimates for 1992 are based primarily on BLS tabulations of wages and salaries of employees covered by unemployment insurance tabulations for the first three quarters and on BEA estimates for the fourth quarter. (The U.S. total of the State estimates for the first three quarters of 1992 published in the January 1993 Survey was based primarily on the monthly national establishment survey data.)

In July, as part of the regular quarterly revision of State personal income, the 1992 State estimates will be revised to incorporate the fourth-quarter 1992 unemployment-insurance tabulations. In August, as part of the regular annual revision of the NIPA'S, the 1992 national estimate will be revised to incorporate the four quarters of unemployment-insurance tabulations. (1.) Quarterly estimates in the 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. (2.) In the NIPA's, an increase in Federal employee compensation is treated as an increase in the price of employee services purchased by the Federal Government. (3) Rates of return can be calculated in many other ways; several are discussed in some detail in the box "Rates of Return" in Survey of Current Business 69 (April 1989): 8.
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Title Annotation:first quarter 1993
Author:Larkins, Daniel; Moran, Larry R.; Morris, Ralph W.
Publication:Survey of Current Business
Date:Apr 1, 1993
Words:3891
Previous Article:U.S. international transactions, fourth quarter and year 1992.
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