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The business situation.

THE FINAL estimate of growth in real gross domestic product (GDP) for the first quarter of 1992 was 2.7 percent, 0.3 percentage point higher than the preliminary estimate released last month (table 1).(1) Residential and nonresidential fixed investment, the change in business inventories, and net exports of goods and services were revised up; personal consumption expenditures and government purchases were revised down. [TABULAR DATA 1 OMITTED]

For real gross domestic purchases, the final estimate of a 2.6-percent increase is 0.1 percentage point higher than the preliminary estimate. The upward revision in gross domestic purchases was smaller than that in GDP because gross domestic purchases does not include net exports.

The final estimates of a 3.0-percent increase in the fixed-weighted price index for gross domestic purchases and a 3.3-percent increase in the fixed-weighted price index for GDP reflect downward revisions of 0.1 percentage point.

Gross national product (GNP).--Real GNP increased 3.4 percent in the first quarter. GNP equals GDP plus net receipts of factor income from the rest of the world. Net receipts of factor income increased in the first quarter, reflecting an increase in profits from the rest of the world and a decrease in interest payments to the rest of the world.

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 deflator for net domestic product. Another measure of U.S. production, command-basis GNP, is calculated by deflating exports of goods and services and receipts of factor income by the implicit price deflator for imports of goods and services and payments of factor income. Thus, command-basis GNP measures U.S. production in terms of its purchasing power. (Command-basis GNP is shown in table 1.11 of the "Selected NIPA Tables.") In recent quarters, command-basis GNP has presented much the same picture of the U.S. economy as GNP: In the first quarter, command-basis GNP increased 3.8 percent, compared with the 3.4-percent increase in GNP; in the fourth quarter of 1991, it increased 0.1 percent, compared with a 0.4-percent increase in GNP; and in the third quarter, it increased 2.1 percent, compared with a 2.0-percent increase in GNP.

Corporate Profits

Profits from current production--profits before tax plus inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj)--increased $39.8 billion in the first quarter of 1992 (table 2). This was the fifth consecutive increase in profits, and it was much larger than the preceding four increases, which averaged $4.9 billion. Despite these increases, profits were still 6.1 percent below their level in the fourth quarter of 1988, their most recent cyclical peak. [TABULAR DATA 2 OMITTED]

Profits from the domestic operations of nonfinancial corporations increased $23.8 billion in the first quarter after increasing $8.9 billion in the fourth quarter of 1991; the first-quarter increase mainly reflected an increase in profits per unit that resulted from both higher prices and lower unit costs. Profits from the domestic operations of financial corporations increased $10.1 billion after decreasing $1.4 billion. Profits from the rest of the world increased $5.9 billion after increasing $2.0 billion.

Cash flow from current production, a profits-related measure of internally generated funds available to corporations for investment, increased $26.5 billion after increasing $13.3 billion. Cash flow as a percentage of nonresidential fixed investment increased for the sixth consecutive quarter, to 85.6 percent, its highest level since 1977.

Profits by industry.--Profits before tax (PBT) with IVA is the best measure of industry profits because estimates of the CCAdj by industry do not exist. According to this measure, profits arising from domestic operations increased $21.9 billion after increasing $1.5 billion. The first-quarter increase was accounted for by both financial and nonfinancial corporations. Among nonfinancial corporations, manufacturing accounted for about two-thirds of the increase. Motor vehicle manufacturers contributed the most to the increase in manufacturing profits, but manufacturers of food and kindred products, of petroleum and coal products, and of "other durable" goods also posted higher profits.

Among nonfinancial corporations, commercial banks and savings and loan associations more than accounted for the first-quarter increase in profits.

Profits from the rest of the world increased $5.9 billion. This component of profits measures profits received by U.S. parents from their foreign affiliates less profits paid to foreign parents by their U.S. affiliates. In the first quarter, receipts increased $8.2 billion and payments increased $2.3 billion. The sharp increase in receipts reflected, in part, increased profits of financial affiliates in the United Kingdom; the increase in payments reflected increased profits of petroleum and manufacturing affiliates in the United States.

Profits before tax and related measures.--PBT increased $32.7 billion. The difference between the $39.8 billion increase in profits from current production and the $32.7 billion increase in PBT reflects changes in the IVA and in the CCAdj. In the first quarter, the IVA decreased $4.7 billion, and the CCAdj increased $11.9 billion. The IVA and the CCAdj convert the value of inventory withdrawals and of depreciation, respectively, that are reported by business to a basis that is consistent with the national income and product accounts. (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.
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Title Annotation:first quarter 1992
Author:Larkins, Daniel
Publication:Survey of Current Business
Date:Jun 1, 1992
Words:950
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