Printer Friendly

The business situation.

According to advance estimates of the national income and product accounts (NIPA'S), real gross domestic product (GDP) increased 2.0 percent in the first quarter of 1992 after increasing 0.4 percent in the fourth quarter of 1991 (chart 1).

Real gross domestic purchases increased 1.7 percent in the first quarter after decreasing 0.4 percent in the fourth, and real final sales to domestic purchasers increased 4.5 percent after decreasing 1.0 percent. The difference between the increase in final sales to domestic purchases reflected a sizable decrease in inventory investment (that is, change in business inventories) in the first quarter. Roughly four-fifths of the first-quarter increase in final sales to domestic purchasers was accounted for by personal consumption expenditures.

The fixed-weighted price index for gross domestic purchases increased 2.7 percent in the first quarter after increasing 2.2 percent in the fourth. Most of the step-up was accounted for by a pay raise for Federal military and civilian personnel.

Motor vehicles.--Real motor vehicle output increased 8.1 percent in the first quarter after falling 8.8 percent in the fourth; trucks accounted for most of the increase. Real final sales of motor vehicles jumped 12.6 percent after no change; a sharp increase in car sales accounted for the jump. Because the increase in output was smaller than that in final sales, inventory investment decreased. (Auto and truck output, sales, and inventories are shown in tabless 8.3-8.6 of the "Selected NIPA Tables.")

In terms of units, domestic car production declined to 5.3 million units (seasonally adjusted annual rate) in the first quarter after declining to 5.6 million in the fourth. Sales increased modestly. Sales of imported cars increased to 2.3 million from 2.1 million, but sales of domestic cars edged down to 6.0 million from 6.1 million. Production and sales in the past four quarters have been lower than in any four consecutive quarters since 1982-83.

Most of the difference between the sharp increase in the NIPA measure of car sales and the much smaller increase in unit car sales is explained by an increase in the consumer share of unit sales (to 58.9 percent in the first quarter from 56.3 percent in the fourth). Because the average expenditure per car by consumers in recent years has been more than $1,500 above that by business, an increase in the consumer share results in an increase in total expenditures. In the third quarter of 1991, the consumer share fell to a record low of 51.5 percent, primarily reflecting manufacturers' aggressive fleet-marketing programs; in the fourth and first quarters, these programs were cut back, and the consumer share increased sharply.

A first-quarter pickup in consumer car sales was consistent with a 3.0-percent increase--the largest in 2 years--in real disposable personal income after small increases in the third and fourth quarters. However, other factors that underlie consumer spending remained weak. The unemployment rate rose to 7.2 percent, the highest rate since 1986, and the Index of Consumer Sentiment (prepared by the University of Michigan's Survey Research Center) slid further.

Factors specific to the motor vehicle industry also were mixed. Interest rates on loans for new cars were lower in the first quarter than in the fourth, but manufacturers' sales-incentive programs were modest in comparison with those offered most of last year.

Domestic car inventories edged down at the end of the first quarter, the sixth consecutive quarter of decline. The publication of the unit inventory level and the inventory-sales ratio that are usually included in this article has been temporarily suspended to correct inconsistencies in the source data; BEA hopes to begin publishing these estimates again in July. A different measure that provides information on inventories is "days' supply," that is, the number of days that would be required to liquidate inventories at the current rate of sales. As reported in Ward's Automotive Reports, days' supply at the end of the first quarter fell to 63--close to the industry's historical target of about 60--from 73 at the end of the fourth quarter (not seasonally adjusted).

Prices

The fixed-weighted price index for gross domestic purchases increase 2.7 percent in the first quarter after increasing 2.2 percent in the fourth (table 1). Most of the first-quarter step-up was accounted for by a 4.2-percent pay raise for Federal military and civilian personnel. (Increases in Federal employee compensation are treated in the NIPA'S as an increase in the price of employee services purchased by the Federal Government.) Prices of gross domestic purchases less food and energy, which may be viewed as a measure of the underlying inflation rate in the U.S. economy, increased 3.3 percent, up from a 2.4-percent increase (chart 2).

Prices of personal consumption expenditures (PCE) increased 3.1 percent in the first quarter after increasing 2.8 percent in the fourth. Prices of the services components of PCE (except electricity and gas) increased more in the first quarter than in the fourth, as did prices of food, of clothing and shoes, and of furniture and household equipment. Prices of the energy components of PCE decreased in the first quarter after increasing in the fourth. Prices of motor vehicles and parts increased less in the first quarter than in the fourth.

Prices of both residential and nonresidential structures decreased a little more in the first quarter than in the fourth. Prices of nonresidential producers' durable equipment increased 1.7 percent in both the first and the fourth quarters.

Reflecting the Federal pay raise, prices of government purchases increased 3.6 percent after increasing 2.3 percent; prices paid by the Federal Government increased 6.8 percent after increasing 3.7 percent. Prices paid by State and local governments increased 1.1 percent, about the same as in the fourth quarter.

The price index for GDP, which measures the prices paid for goods and services produced in the United States, increased 3.1 percent in the first quarter after increasing 2.1 percent in the fourth. This index differs from the price index for gross domestic purchases by including prices of exports and excluding prices of imports. Prices of exports were unchanged in the first quarter after increasing in the fourth, and prices of imports decreased, mostly due to a large drop in petroleum prices.

Personal income

Real disposable personal income (DPI) increased 3.0 percent in the first quarter after increasing 0.9 percent in the fourth (chart 3). The acceleration reflected a pickup in current-dollar disposable personal income, a downswing in personal tax and nontax payments, and a slowdown in the implicit price deflator for PCE.

In current dollars, personal income increased $60.8 billion in the first quarter after increasing $42.0 billion in the fourth (table 2). The step-up was accounted for by transfer payments, which increased $41.9 billion after increasing $21.7 billion. The first-quarter increase in transfer payments was boosted by the following special factors:

* Cost-of-living adjustments to the benefits paid under social security and under several other Federal employee retirement and income support programs.

* An increase in unemployment insurance benefits resulting from the emergency unemployment compensation program, which provided for an additional 13 to 20 weeks of benefits to individuals who had exhausted their regular unemployment benefits.

* A speedup of life insurance dividend payments to veterans (these payments are usually spread evenly through the year).

* An increase in Earned Income Tax Credit payments resulting from the expansion of the basic credit rate.

Wage and salary disbursements increased $23.7 billion in the first quarter, $6.8 billion more than in the fourth. Government wages and salaries-- boosted by the pay raise for Federal civilian and military personnel--accounted for most of the acceleration.

Proprietors' income increased $11.1 billion in the first quarter after increasing $9.5 billion in the fourth. Farm proprietors' income increased $0.9 billion after increasing $4.1 billion; the slowdown was more than accounted for by a downswing in Federal farm subsidy payments. Subsidy payments decreased $0.4 billion after jumping $8.4 billion in the fourth quarter, when Conservation Reserve payments and deficiency payments increased strongly. (Conservation Reserve payments compensate land owners who devote their land to conservation uses under a long-term commitment; 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 increased $1.2 billion after decreasing for two quarters; the turnabout largely reflected higher farm prices.

Nonfarm proprietors' income increased more in the first quarter than in the fourth, reflecting pickups in retail trade and services and a turnaround in real estate.

Among the remaining components of personal income, personal interest income decreased $17.6 billion after decreasing $11.0 billion; the decreases reflected lower interest rates. Rental income of persons increased $2.4 billion in the first quarter after increasing $1.1 billion in the fourth; the fourth-quarter increase had been held down by $2.1 billion in uninsured losses that resulted from the brush fire in Oakland, California, in October. Reduced mortgage interest payments, which reflect the effects of lower interest rates and are deducted in measuring rental income, were offset by increased payments for points and related fees. In the NIPA'S, these costs are deducted when a mortgage is refinanced even when they are added to the mortgage principal.

Personal contributions for social insurance, which are subtracted in deriving the personal income total, increased $4.7 billion in the first quarter after increasing $1.1 billion in the fourth. The first-quarter increase was largely due to the following special factors:

* An increase in the social security taxable wage base for employees from $53,400 to $55,500,

* Increases in the social security taxable earning base for the self-employed,

* An increase in the medicare taxable wage base for employees from $125,000 to $130,200, and

* An increase in the monthly premium for supplementary medical insurance.

Personal tax and nontax payments decreased $1.4 billion in the first quarter after increasing $3.3 billion in the fourth. A reduction in personal income tax withholding that was implemented by executive action in March reduced first-quarter payments by $8.3 billion at an annual rate.

In the first quarter, personal outlays -- mainly PCE -- increased substantially more than current-dollar DPI; thus, personal saving decreased $17.8 billion. The personal saving rate fell 0.5 percentage point to 4.7 percent.

Corporate Profits and Property Income in 1991

Profits from current production - profits before tax plus inventory valuation adjustment (IVA) and capital consumption adjustment (CCADj) -- decreased $12.2 billion in 1991 after decreasing $32.7 billion in 1990 (table 3). At $306.8 billion, profits in 1991 were 15.9 percent below their peak in 1988.

Profits of domestic nonfinancial corporations decreased $19.1 billion after decreasing $36.7 billion. Both decreases reflected drops in unit profits that resulted from increases in costs that were larger than those in prices. Unit costs increased 3.4 percent in 1991 and 4.9 percent in 1990; in contrast, unit prices increased 2.5 percent in 1991 and 3.3 percent in 1990.

Profits of domestic financial corporations increased $1.0 billion after decreasing $2.4 billion.

Profits from the rest of the world increased $5.9 billion after increasing $6.3 billion. Much of the change in both years reflected drops in profits earned by U.S. affiliates of foreign corporations, which are subtracted in calculating rest-of-the-world profits.

Cash flow from current production, a profits-related measure of internally generated funds available to corporations for investment, increased $12.8 billion in 1991 after decreasing $20.9 billion in 1990. As a percentage of nonresidential fixed investment, cash flow was 77.8 percent in 1991, up from 70.8 percent in 1990.

Current-production measures of industry profits are not available because estimates of the CCADj by industry do not exist; profits before tax (PBT) with IVA is the best available measure of industry profits. For domestic nonfinancial industries, this measure fell $10.6 billion in 1991 after falling $15.6 billion in 1990. In both years, the drop was more than accounted for by manufacturing industries. Within manufacturing, decreases were widespread; motor vehicle manufacturers posted the largest decreases, and food manufacturers posted the largest increases.

Related measures.--PBT is more closely related to the measure on which corporate income taxes are based than is profits from current production.(1) PBT decreased $19.9 billion in 1991 after decreasing $12.2 billion in 1990. The difference between the decrease in PBT and that in profits from current production in 1991 reflected an increase in the IVA that more than offset a decrease in the CCADj.

The IVA is an estimate, with the sign reversed, of the inventory profits that are included in PBT. Inventory profits decreased $17.3 billion in 1991 after decreasing $3.3 billion in 1990. The decreases reflected a slowing in the rate of increase of prices of inventories goods held by corporations using non-LIFO inventory methods. For example, the increase in the Producer Price Index, a major source of information on inventory prices, slowed to 0.2 percent in 1991 from 3.7 percent in 1990.

The CCADj is the difference between the predominantly tax-based depreciation measure that underlies PBT, on the one hand, and BEA'S estimate of economic depreciation, on the other. The CCAdj decreased $9.5 billion in 1991 after decreasing $23.9 billion in 1990. The decreases in the CCADj in recent years reflected the longer service lives that the Tax Reform Act of 1986 (TRA) mandated for calculating tax-based depreciation. As assets subject to the TRA replaced assets with shorter tax service lives in the stock of depreciable assets, the CCAdj decreased. Most of the assets in the stock of depreciable assets are now subject to the TRA, and the downtrend in the CCAdj appears to be reversing itself.

Corporate 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 $3.2 billion in 1991 after increasing $6.5 billion in 1990.

Chart 4 and table 4 provide a perspective on the recent movements in both types of property income. (The chart and table reflect the results of the comprehensive NIPA revision released in December 1991.) From 1970 to 1991, both types trended up, but the upward trend in net interest -- an average annual rate of increase of 10.7 percent -- was stronger than that in profits -- an average annual rate of increase of 6.3 percent. As a result, the share of net interest in property income rose from 23.0 percent in 1970 to 41.4 percent in 1991. It is also worth noting that profits was more sensitive to the business cycle than net interest was: Profits decreased markedly in the recession years of 1974, 1980, 1982, as well as in 1989-91; in contrast, net interest increased in each of these years except 1991.

Perspective can also be gained by examining property income in relation to the net reproducible assets and the domestic income of domestic nonfinancial corporations. Net reproducible assets consist of fixed capital stock and inventories, both measured at current replacement cost. Domestic income is property income plus compensation of employees.

The ratio of property income to the value of net reproducible assets is the rate of return on these assets -- that is, the rate of return, or yield, on "capital." A rate of return calculated in this way is an estimate of the profitability of new investment (assuming that the mix of new investment is the same as that of net reproducible assets). The use of property income, rather than just profits, as the numerator of this ratio reflects the assumption that a corporation's decision to invest in plant, equipment, and inventories depends on its estimate of the income stream that will flow from that investment. Given that estimate, the decision on whether to finance the investment out of equity or debt -- that is, whether the income stream will take the form of profits or of interest -- is a separate question, one presumably determined by financial considerations.(2)

The ratio of property income to domestic income is property income's share of domestic income -- that is, the portion 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 1970-91 in chart 5 and are reported, along with related ratios, for 1959-91 in table 5. In 1991, property income's rate of return (column 1) and its share of domestic income (column 6) fell to the lowest levels since 1983 and 1982, respectively. Lower profits were primarily responsible for the decreases.

(1). For detail on the major differences between PBT and the measure on which corporate income taxes are based, see table 8.22 in the "Selected NIPA Tables," in the January 1992 SURVEY.

(2). Rates of return can be calculated in many other ways; several are discussed in some detail in the April 1989 "Business Situation."
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:economic statistics
Author:Larkins, Daniel; Moran, Larry R.; Morris, Ralph W.
Publication:Survey of Current Business
Date:Apr 1, 1992
Words:2918
Previous Article:U.S. International transactions, fourth quarter and year 1991.
Next Article:Economic theory and BEA's alternative quantity and price indexes.
Topics:


Related Articles
Improving the Quality of Economic Statistics: the 1992 Economic Statistics Initiative.
June indexes show Japan's economy still sluggish.
Dec. leading eco index stays above boom-or-bust line.
Economy's downward trend slowing, gov't report says.
BUSINESS SITUATION.
1999 Shiskin Award.
BUSINESS SITUATION.
2ND LD: China revises 2004 GDP upwards.
dubai world statistics department's contribution to economic development lauded.
dubai world statistics department,COs contribution to economic development lauded.

Terms of use | Copyright © 2016 Farlex, Inc. | Feedback | For webmasters