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The business situation.

the BUSINESS SITUATION

Final estimates for the second quarter of 1991 show that real GNP decreased at an annual rate of 0.5 percent; the preliminary estimates issued a month ago had shown a 0.1-percent decrease.(1) The second-quarter increase in real gross domestic purchases was revised from 2.0 percent to 1.4 percent.

The revisions in GNP and gross domestic purchases reflected downward revisions in the change in business inventories, in government purchases, and in personal consumption expenditures; fixed investment was revised up (see table 1 on page 19). Net exports, corporations increased $1.4 billion, and which is included in GNP but not in gross domestic purchases, was revised up; most of the revision was in imports.

The increase in the fixed-weighted price index for GNP was revised up 0.1 percentage point to 3.1 percent; the increase in the fixed-weighted price index for gross domestic purchases was also revised up 0.1 percentage point to 2.4 percent.

Corporate Profits

Profits from current production - profits before tax plus inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj) - decreased $1.8 billion in the second quarter of 1991 (table 1). The decrease mainly reflected a sharp drop in the profits of foreign affiliates of U.S. corporations; domestic profits increased $8.5 billion.

Table : Table 1. - Corporate Profits
 Level Change from
 preceding quarter
 1991:II
 1991:I 1991:II
 Billions of dollars
Profits from current production 284.4 -2.7 -1.8
Domestic 226.5 -2.8 8.5
Financial 27.0 3.9 1.4
Nonfinancial 199.5 -6.7 7.1
Rest of the world 57.9 .2 -10.3
Inventory valuation adjustment 4.9 21.9 -3.2
Capital consumption adjustment .2 -2.1 3.7
Profits before tax 279.2 -22.6 -2.3
Profits tax liability 118.6 -11.4 3.5
Profits after tax 160.6 -11.2 -5.8


Profits by industry:
Profits before tax with IVA 284.1 -.6 -5.6
Domestic 226.3 -.9 4.9
Financial 23.2 3.7 .7
Nonfinancial 203.0 -4.5 4.1
Manufacturing 72.0 -6.0 4.9
Trade 47.6 3.4 1.4


Transportation and public
utilities 43.7 1.7 1.8
Other 39.7 -3.7 -4.0
Rest of the world 57.9 .2 -10.3
Receipts (inflows) 68.6 6.5 -9.4
Payments (outflows) 10.7 6.3 1.0


Dollars

Unit prices, costs, and profits of domestic nonfinancial corporations:
Unit price 1.220 0.017 0.012
Unit labor cost .822 .010 .008
Unit nonlabor cost .317 .009 .001
Unit profits from current production .082 -.001 .003


Note - Levels of these and other profits series are found in tables 1.14, 1.16, 6.18B, and 7.18 of the "Selected NIPA Tables." IVA Inventory valuation adjustment

The increase in domestic profits followed three consecutive quarterly decreases. Profits of domestic financial profits of domestic nonfinancial corporations increased $7.1 billion. For nonfinancial corporations, the increase reflected an increase in unit profits; real gross domestic product of these corporations was virtually unchanged.

Cash flow from current production, a profits-related measure of internally generated funds available to corporations for investment, decreased $1.9 billion. This small decrease was accompanied by a similar decrease in nonresidential fixed investment; as a result, the ratio of cash flow to nonresidential fixed investment, 81 percent, was unchanged.

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 increased $4.9 billion. The increase mainly reflected a $4.1 billion increase in the profits of nonfinancial corporations. Manufacturing profits increased $4.9 billion. Profits of manufacturers of chemicals, fabricated metals, and food increased, and losses of motor vehicle manufacturers decreased; these improvements were partly offset by sharply lower profits in petroleum manufacturing. Profits in trade and in the transportation and public utilities group increased moderately. "Other" nonfinancial profits decreased sharply, largely reflecting decreases in mining (mainly petroleum extraction) and in services.

Profits of domestic financial corporations increased $0.7 billion. The increase was more than accounted for by increased profits of federally sponsored credit agencies and by reduced losses at savings and loan associations. Profits of commercial banks changed little, and the earnings of Federal Reserve banks, which are treated as corporate profits in the national income and product accounts, decreased.

Profits from the rest of the world decreased $10.3 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. In the second quarter, inflows decreased $9.4 billion, and outflows increased $1.0 billion. The sharp drop in inflows reflected drops in the profits of both petroleum and nonpetroleum affiliates. Most of the underlying detail on inflows is not available on a seasonally adjusted basis; from the unadjusted detail, it appears that the decrease was concentrated in Western Europe and Japan.

Profits before and after tax. - PBT decreased $2.3 billion, and profits after tax (PAT) decreased $5.8 billion. Both decreases reflect the $10.3 billion decrease in profits from the rest of the world. If rest-of-the-world profits are removed from both measures, the resulting estimates of domestic profits show an increase of $8.0 billion before tax and an increase of $4.6 billion after tax.

(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 1982 dollars and are based on 1982 weights.

BEA also publishes an alternative measure of real GNP based on 1987 weights. The second-quarter increase in this measure was revised from 0.8 percent to 0.4 percent.
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Title Annotation:second quarter of 1991
Publication:Survey of Current Business
Date:Sep 1, 1991
Words:987
Previous Article:U.S. direct investment abroad: detail for historical-cost position and balance of payments flows, 1990.
Next Article:National income and product accounts.
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