Printer Friendly

The business situation.

IN THE fourth quarter of 1991, U.S. production registered a small increase, and U.S. demand decreased slightly. Real gross domestic product (GDP), a measure of goods and services produced in the United States, increased 0.8 percent in the fourth quarter after increasing 1.8 percent in the third (chart 1).(1) This "preliminary" estimate for the fourth quarter is 0.5 percentage point higher than the "advance" estimate issued a month ago; reasons for the upward revision are discussed in the last section of this article. Real gross domestic purchases, a measure of goods and services purchased by U.S. residents, decreased o.3 percent in the fourth quarter after increasing 3.4 percent in the third. That gross domestic purchases decreased in the fourth quarter while GDP increased is accounted for by a stronger increase in exports than in imports.(2)

The fixed-weighted price index for gross domestic purchases increased 2.3 percent in the fourth quarter after increasing 2.5 percent in the third.(3) The comparable price index for GDP increase 2.2 percent after increasing 2.6 percent. These price indexes, which are now calculated with 1987 weights, reflect the recent comprehensive revision to the national income and product accounts (NIPA'S).

Cyclical perspective.--Following the business cycle peak in the third quarter of 1990, real GDP decreased for two quarters and then increased for three. The two decreases took GDP 1.6 percent below its level at the cycle peak, and the three subsequent increases brought it back to within 0.6 percent of the level (table 1). Exports increased in four of the last five quarters; these increases thereby moderate the drop in GDP and contributed to its rebound. In the fourth quarter of 1991, the level of exports was 12.1 percent above its level at the peak of the cycle. [Tabular Data Omitted]

Real gross domestic purchases decreased more sharply than real GDP after the peak in the cycle, and it subsequently recouped less of its loss. Decreases in the fourth quarter of 1990 and in the first quarter of 1991 took purchases down 2.5 percent. Increases in the second and third quarters of 1991 and the decrease in the fourth quarter left gross domestic purchases 1.6 percent below its level at the peak of the cycle.

Among the major components of both GDP and gross domestic purchases, only residential investment and inventory investment (that is, the change in business inventories) increased in the last three quarters of 1991. The increases in residential investment were concentrated in single-family construction and followed many quarters of decrease. The increases in inventory investment reflected a swing from substantial inventory liquidation to moderate accumulation.

Nonresidential fixed investment and government purchases decreased in the last three quarters of 1991. In nonresidential investment, decreases in structures accounted for the decreases in the second and third quarters; in the fourth quarter, both structures and equipment decreased. In government purchases, the decreases partly reflected falling expenditures for national defense after the buildup that accompanied Operation Desert Shied and Operation Desert Storm.

Personal consumption expenditures decreased in the fourth quarter after increasing in the second and third quarters. Expenditures for services tend to be less sensitive to cyclical factors than expenditures for goods; in the fourth quarter, the level of expenditures for services was above its level at the cycle peak, while the level of expenditures was below its level at the cycle peak for both durable and nondurable goods.

Personal consumption expenditures

Real personal consumption expenditures (PCE) decreased 0.2 percent in the fourth quarter after increasing 2.3 percent in the third quarter and 1.4 percent in the second (table 2). [Tabular Data Omitted]

The fourth-quarter decrease may have reflected concerns about job security and income. The unemployment rate increased again in the fourth quarter, to 6.9 percent (the highest rate since 1986). Real disposable personal income increased in the third and fourth quarters, but only by 0.3 percent and 1.1 percent, respectively. Reflecting consumer uncertainty, the Index of Consumer Sentiment (prepared by the University of Michigan's Survey Research Center) plunged in the fourth quarter, to its lowest level in a year.

Expenditures for durable goods fell 6.0 percent in the fourth quarter after jumping 9.5 percent in the third quarter and decreasing 1.8 percent in the second. All major components of durable goods decreased in the fourth quarter.

Expenditures for nondurable goods decreased 3.2 percent in the fourth quarter after not changing in the third quarter and increasing 0.9 percent in the second. All major components of nondurable goods decreased in the fourth quarter, but about two-thirds of the decrease was accounted for by clothing and shoes.

Expenditures for services increased 2.9 percent in the fourth quarter after increasing 2.2 percent in the third quarter and 2.5 percent in the second. All major components increased in the fourth quarter, but most of the increase was accounted for by medical care and "other" services.

Nonresidential fixed investment

Real nonresidential fixed investment decreased 4.5 percent in the fourth quarter, a little more than in the two preceding quarters (table 3). The fourth-quarter decrease was accounted for by both structures and procedures' durable equipment (PDE). In the second and third quarters, only structures decreased. [Tabular Data Omitted]

The factors that are associated with investment spending were mixed in recent quarters. Real final sales of domestic product was relatively flat, capacity utilization rates were low, and corporate profits increased only modestly. In contrast, corporate cash flow posted more substantial increases, and the yield on new high-grade corporate bonds decreased in each quarter of the year. (The latest Census Bureau survey of plans for plant and equipment expenditures, which was released in mid-December 1991, reported that real spending in 1992 is expected to be 5.7 percent higher than in 1991.)

Structures decreased 6.3 percent in the fourth quarter after decreasing 23.9 percent in the third quarter and 10.3 percent in the second. The decrease in the fourth quarter was the fifth consecutive decrease, but it was considerably smaller than the preceding four decreases. A decrease in nonresidential buildings was more than accounted for by commercial buildings; industrial buildings and most other types of buildings increased. The decrease in commercial buildings was another in a long series of decreases that left commercial building at its lowest level in 12 years. Mining exploration, shafts, and wells--mostly oil wells--posted another decrease that was rather small in terms of dollars but that was sizable in terms of percentages.

PDE decreased 3.7 percent in the fourth quarter after increasing 6.7 percent in the third quarter and registering no change in the second. Information processing and related equipment increased for the third consecutive quarter, but this increase was more than offset by decreases in the other PDE components. A decrease in transportation equipment was especially large; auto PDE slipped slightly and truck PDE increased, but civilian aircraft, a volatile component, fell sharply.

Residential investment

Real residential investment increased 13.1 percent in the fourth quarter after increasing 10.9 percent in the third quarter and 3.1 percent in the second. Single-family construction and the "other" component of residential investment increased in the fourth quarter, while multifamily construction decreased for the 10th consecutive quarter. (The "other" component includes additions and alterations, major replacements, mobile home sales, and brokers' commissions on house sales.)

The increase in single-family construction reflected increases in single-family housing starts--up 187,000, to 920,000 (seasonally adjusted annual rates)--during the last three quarters of 1991 after decreasing 350,000 during the preceding four quarters (chart 2).

The fourth-quarter upswing in the "other" component was largely attributable to an upswing in brokers' commissions on house sales. Sales of new houses increased 4.7 percent in the fourth quarter after decreasingly slightly in the third, and sales of existing homes increased 1.2 percent after a sharp decrease. The fourth-quarter increases in sales were partly the result of dropping mortgage rates; by the end of the fourth quarter, commitment rates were at their lowest levels in more than 15 years (chart 3).

Multifamily construction decreased much less in the fourth quarter than in the third. With the fourth-quarter decrease, multifamily construction was at its lowest level in 30 years.

Inventory investment

Real inventory investment--that is, the change in business inventories--increased $10.8 billion in the fourth quarter after increasing $30.5 billion in the third quarter and $2.4 billion in the second (table 4). The fourth-quarter increase reflected a step-up in inventory accumulation; the third-quarter increase reflected a swing from substantial liquidation to slight accumulation. [Tabular Data Omitted]

Nonfarm inventories increased $12.5 billion in the fourth quarter after decreasing in the four preceding quarters. The fourth-quarter turnaround was accounted for by a sharp upswing in wholesale trade inventories and a step-up in accumulation of inventories in retail trade excluding auto dealers.

Manufacturing inventories decreased $9.9 billion in the fourth quarter, the third consecutive quarter of liquidation. Inventories of durables decreased, continuing a long and sometimes sharp series of decreases; the fourth-quarter decrease was primarily accounted for by electrical machinery, nonelectrical machinery, and transportation equipment other than motor vehicles. Inventories of nondurables increased after modest decreases in the preceding two quarters; the turnaround was accounted for by paper products, chemicals, and apparel.

Wholesale trade inventories increased $15.3 billion in the fourth quarter after decreases in the two preceding quarters. The increase was accounted for by an upswing in the inventories of merchant wholesalers--mainly in electrical goods, in machinery, equipment, and supplies, and in motor vehicles and parts. Inventories of nonmerchant wholesalers decreased slightly after increasing.

Retail trade inventories increased $8.4 billion in the fourth quarter after increasing $6.2 billion in the third quarter and decreasing $3.0 billion in the second. Retail trade inventories other than those held by auto dealers increased considerably more in the fourth quarter than in the third. The fourth-quarter increase was partly accounted for by a substantial accumulation in nondurables; the accumulations were in all types of goods. Retail auto dealers' inventories decreased substantially after no change.

Farm inventories decreased $1.6 billion in the fourth quarter after increasing $2.9 billion in the third quarter and $0.4 billion in the second. The decrease largely reflected stronger market sales. Inventories of crops decreased in both quarters; inventories of livestock decreased slightly after an increase.

Reflecting the fourth-quarter changes in inventories and final sales of domestic businesses, the constant-dollar ratio of nonfarm inventories to final sales edged up slightly for the third consecutive quarter, to 2.58, but it remained in the narrow range within which it has fluctuated for the past 2 years.

Net exports

Real net exports increased in the fourth quarter after decreasing in the third quarter and increasing in the second (table 5). The fourth-quarter increase increase reflected a 13.1-percent increase in exports that was partly offset by a 2.5-percent increase in imports. [Tabular Data Omitted]

Merchandise exports increased 15.0 percent after increasing 4.6 percent in the third quarter and 17.8 percent in the second. Nonagricultural exports increased 13.6 percent after increasing 2.1 percent; the step-up was largely due to exports of civilian aircraft, which rebounded in the fourth quarter after dropping sharply in the third. Agricultural exports increased sharply for the second consecutive quarter. Exports of services increased 8.3 percent, much less than in the two preceding quarters.

Merchandise imports increased 1.9 percent in the fourth quarter after increasing 23.6 percent in the third quarter and 14.8 percent in the second. The fourth-quarter increase was more than accounted for by nonpetroleum products. Nonpetroleum products increased about one-third as much as they had in the third quarter; most of the slowdown was accounted for by automobile imports, which decreased in the fourth quarter after increasing sharply in the third. Petroleum imports swung from a modest increase to a sharp decrease. Imports of services increased 5.3 percent after increasing much less in the third quarter and a little less in the second.

Government purchases

Real government purchases decreased 5.4 percent in the fourth quarter after decreasing 3.4 percent in the third quarter and 0.1 percent in the second (table 6). The decreases in the third and fourth quarters were concentrated in Federal defense purchases and were at least partly attributable to the demobilization following Operation Desert Storm. [Tabular Data Omitted]

Federal defense purchases decreased 15.4 percent in the fourth quarter after decreasing 8.9 percent in the third. The fourth-quarter decrease was accounted for by military hardware, particularly aircraft and vehicles, and by purchases of services, mainly compensation of employees, installation support, personnel support, and contractual research and development.

Federal nondefense purchases decreased 12.1 percent in the fourth quarter after decreasing 5.9 percent in the third. Both decreases were largely traceable to changes in inventories of farm products held by the Commodity Credit Corporation (CCC). The level of CCC inventories decreased $3.3 billion in the fourth quarter after decreasing $0.1 billion in the third and increasing $2.1 billion in the second. Federal nondefense purchases excluding CCC inventory transactions changed little in the fourth quarter after increasing in the two preceding quarters.

State and local government purchases increased 1.4 percent in the fourth quarter after modest decreases in the three preceding quarters. The turnaround was attributable to employee compensation and to structures.

Prices

The fixed-weighted price index for gross domestic purchases increased 2.3 percent in the fourth quarter after increasing 2.5 percent in the third (table 7). This price index measures the prices paid by U.S. residents, and it is derived from the prices of PCE, gross private domestic investment, and government purchases. [Tabular Data Omitted]

Prices of PCE increased 2.9 percent in the fourth quarter, about as much as in the two preceding quarters. Prices of most of the energy components of PCE increased in the fourth quarter after decreasing in the third. Food prices increased a little after a small decrease.

Prices of structures, both residential and nonresidential, decreased slightly after moderate increases. Prices of nonresidential producers' durable equipment increased faster in the fourth quarter than in the third, but the increase was still modest.

Prices of government purchases increased 2.0 percent, the same as in the third quarter.

The price index for GDP measures the prices paid for goods and services produced in the United States. It differs from the price index for gross domestic purchases by including prices of exports and excluding prices of imports. The GDP price index increased 2.2 percent in the fourth quarter after increasing 2.6 percent in the third. Prices of both exports and imports swung up in the fourth quarter.

Revisions

The preliminary estimate of real GDP growth in the fourth quarter, 0.8 percent, is 0.5 percentage point higher than the advance estimate issued last month, which was based on less complete information. For real gross domestic purchases, the preliminary estimate was a 0.3-percent decrease, and the advance estimate was a 1.6-percent decrease (table 8). [Tabular Data Omitted]

The upward revision in GDP was smaller than that in gross domestic purchases because of a sizable downward revision in net exports. Revisions in net exports--that is, exports minus imports--lead to revisions in GDP but not in gross domestic purchases.

Real inventory investment was revised up $8.3 billion; the upward revision was more than accounted for by nonfarm inventories, and it primarily reflected the incorporation of newly available data on December inventories of retail stores and merchant wholesalers. Personal consumption expenditures was revised up $7.3 billion; about two-thirds of the revision was in nondurable goods and largely reflected the incorporation of revised source data for November. The largest downward revision, $9.3 billion, was in net exports; exports were revised down and imports up as a result of the incorporation of revised merchandise trade data for November and newly available merchandise trade data for December. (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)Gross domestic purchases is calculated as the sum of personal consumption expenditures (PCE), gross private domestic investment (GPDI), and government purchases. GDP is calculated as the sum of these three components plus exports minus imports (thereby including U.S. production of goods and services sold outside the United States and excluding those goods and services in PCE, GPDI, and government purchases that are not produced in the United States). (3)As part of the comprehensive NIPA revision, the price index for gross domestic purchases replaced the price index for GNP as the featured measure of price change. For most purposes, it is more useful to tract changes in the prices paid by U.S. purchasers than changes in the prices received by U.S. producers. For example, a sharp rise in the price of imported petroleum usually affects prices of gross domestic purchases but not GNP (and GDP) prices.
COPYRIGHT 1992 U.S. Government Printing Office
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:4th quarter 1991
Author:Larkins, Daniel; Moran, Larry R.; Morris, Ralph W.
Publication:Survey of Current Business
Date:Feb 1, 1992
Words:2890
Previous Article:Personal income by region and state, third quarter 1991.
Next Article:National income and product accounts.
Topics:


Related Articles
The business situation.
The business situation.
The business situation.
FLORIDA EMPLOYMENT SITUATION: FOURTH QUARTER 1991
IBM ANNOUNCES 1991 FINANCIAL RESULTS
IBM ANNOUNCES 1991 FINANCIAL RESULTS
LOUISIANA-PACIFIC REPORTS HIGHER FOURTH-QUARTER EARNINGS
IBM'S FIRST-QUARTER REVENUE AND EARNINGS INCREASE FROM 1991 LEVELS
IBM'S SECOND-QUARTER AND FIRST-HALF REVENUE AND EARNINGS INCREASE FROM 1991 LEVELS
The business situation.

Terms of use | Copyright © 2017 Farlex, Inc. | Feedback | For webmasters