Printer Friendly

The business situation.

According to the "preliminary" estimates for the third quarter of 1992, real gross domestic product (GDP), a measure of goods and services produced in the United States, increased 3.9 percent; the "advance" third-quarter estimate, issued in October, had shown a 2.7-percent increase.(1) Real gross domestic purchases, a measure of goods and services purchased by U.S. residents, increased 4.3 percent, 1.0 percentage point more than October's estimate. The fixed-weighted price index for gross domestic purchases increased 2.5 percent, 0.1 percentage point more than October's estimate. (The "Revisions" section of this article discusses the sources of revisions in the third-quarter estimates.)

The 3.9-percent increase in real GDP in the third quarter was the largest increase since the fourth quarter of 1988; it was substantially higher than the increases in recent quarters (chart 1). Most of the acceleration from the second quarter to the third was accounted for by output of goods; output of structures swung down (table 1).

[TABULAR DATA OMITTED]

The 4.3-percent increase in real gross domestic purchases in the third quarter was the largest increase since the fourth quarter of 1987; it also was substantially higher than the increases in recent quarters. (Unlike GDP, gross domestic purchases excludes exports of goods and services and includes imports of goods and services.) The composition of the increase in gross domestic purchases was substantially different in the second and third quarters. In the second quarter, inventory investment - that is, the change in business inventories - had accounted for about one-half of the increase, and nonresidential fixed investment had accounted for most of the rest. In the third quarter, inventory investment accounted for less than one-fourth of the increase, and personal consumption expenditures accounted for most of the rest.

Hurricanes Andrew and Iniki. - Hurricane Andrew struck Florida and Louisiana in late August, and Hurricane Iniki struck Hawaii in mid-September. As explained in the "Business Situation" in the September and October issues of the SURVEY OF CURRENT BUSINESS, BEA will not attempt to quantify the total impact that the hurricanes had on national income and product accounts (NIPA) aggregates in the third quarter; most of the effects of the storms are embedded in the source data and cannot easily be separated. However, BEA has adjusted certain components of the NIPA's to reflect effects that are not accounted for in the source data. Adjustments were calculated primarily to reflect the destruction of structures and equipment owned by businesses (including owner-occupied housing, which is treated as a business entity in the NIPA's), insurance benefits received by consumers and businesses, and insurance benefits paid by foreign companies. These adjustments were presented and described in some detail in the October "Business Situation"; hurricane-related benefits paid by insurance companies and received by persons and corporations have since been revised up on the basis of new information (see "Revisions" section).

Personal consumption expenditures

Real personal consumption expenditures (PCE) increased 3.7 percent in the third quarter after changing little in the second (table 2). Expenditures for nearly an types of goods and services increased in the third quarter.

[TABULAR DATA OMITTED]

The increase in PCE is surprisingly large in light of the weakness in major factors associated with consumer spending. Real disposable personal income increased only 0.4 percent in the third quarter after increasing modestly, 1.2 percent, in the second. The unemployment rate increased slightly, to 7.6 percent. The Index of Consumer Sentiment (prepared by the University of Michigan's Survey Research Center) declined for the third time in four quarters.

Expenditures for durable goods increased 9.5 percent in the third quarter after declining 2.1 percent in the second. Furniture and household equipment increased 17.0 percent after no change; consumer electronics accounted for much of the increase. "Other" durable goods jumped 23.0 percent after declining 5.6 percent; jewelry and books accounted for much of the increase. Motor vehicles and parts decreased 2.2 percent after decreasing 2.8 percent; the third-quarter decrease mainly reflected a drop in new foreign cars that was partly offset by an increase in new domestic cars.

Expenditures for services increased 3.0 percent in the third quarter after increasing 1.2 percent in the second. All major components contributed to the third-quarter increase. A 9.6-percent increase in transportation was primarily accounted for by increased air travel, probably in response to fare reductions by most major airlines. Medical care increased 3.8 percent, about as much as in the second quarter.

Expenditures for nondurable goods increased 2.5 percent in the third quarter after decreasing 1.5 percent in the second. Clothing and shoes accounted for the increase. Food and "other" nondurable goods changed little, and energy decreased.

Nonresidential fixed investment

Real nonresidential fixed investment increased 1.9 percent in the third quarter after a 16.1-percent jump in the second quarter that mainly reflected shipments of civilian aircraft that had been ordered many quarters earlier (table 3).

[TABULAR DATA OMITTED]

Excluding the second-quarter jump, nonresidential fixed investment has been lackluster at best, reflecting the mix of factors that underlie investment spending. The yield on new high-grade corporate bonds decreased almost 1 percentage point over the past four quarters; during the same period, corporate profits and cash flow increased almost 10 percent (and would have been up substantially more were it not for Hurricanes Andrew and Iniki). In contrast, real final sales of domestic product has been sluggish, increasing less than 2 percent over the past four quarters. During the same period, the capacity utilization rate in manufacturing has drifted down slightly; in the third quarter it was more than 7 percentage points below its cyclical peak.

Structures decreased 14.4 percent in the third quarter after decreasing 0.8 percent in the second. Nonresidential buildings decreased for the eighth consecutive quarter; industrial and commercial buildings contributed about equally to the third-quarter decrease. Utilities' construction was again unchanged.

Producers' durable equipment increased 9.2 percent in the third quarter after increasing 24.1 percent in the second. Transportation equipment decreased after a sharp upswing in the second quarter; most of the decrease was accounted for by civilian aircraft, which had accounted for almost two-thirds of the second-quarter upswing. Information processing equipment increased substantially after several quarters of smaller increases.

Residential investment

Real residential investment increased 0.8 percent in the third quarter after increasing 12.6 percent in the second. The third-quarter increase was the smallest in six quarters. In the third quarter, a decrease in multifamily structures largely offset moderate increases in single-family structures and in the "other" component.

Single-family construction increased much less in the third quarter than in the second and much less in the second than in the first. Most of the slowdown reflected a shift toward the construction of smaller units or of units with fewer amenities; single-family housing starts slowed only from 1.05 million units (seasonally adjusted annual rate) in the first quarter to 1.02 million units in the third (chart 2).

Multifamily construction decreased in the third quarter after increasing in the second. The increase was only the second one in 3 years.

In the "other" component, increases in improvements and in new mobile home sales were partly offset by a small decrease in brokers' commissions on house sales. House sales changed little in the third quarter, despite a continued slide in mortgage interest rates (chart 3).

Inventory investment

Real inventory investment - that is, the change in business inventories - increased $12.4 billion in the third quarter after increasing $20.4 billion in the second (table 4). The third-quarter increase reflected a step-up in inventory accumulation; the second-quarter increase had reflected a swing from liquidation to moderate accumulation.

[TABULAR DATA OMITTED]

Nonfarm inventories increased $14.8 billion in the third quarter after increasing $6.0 billion in the second. The step-up was attributable to an upswing in manufacturing inventories and to faster accumulation of nonauto retail trade inventories.

Manufacturing inventories increased $4.5 billion in the third quarter after five consecutive quarterly decreases. The increase was accounted for by substantial accumulations in inventories of nondurables - mainly in the chemicals, food, and apparel industries. Inventories of durable goods industries decreased for the eighth consecutive quarter; the third-quarter decrease was largely in transportation equipment, mainly aircraft.

Wholesale trade inventories increased $1.1 billion in the third quarter after increasing $3.2 billion in the second. In the third quarter, an increase in inventories of durable goods was largely offset by a decrease in inventories of nondurable goods. Motor vehicles and parts accounted for about one-half of the increase in durable goods; farm products and petroleum and petroleum products more than accounted for the decrease in nondurable goods.

Retail trade inventories increased $10.8 billion in the third quarter after increasing $11.8 billion in the second. Auto dealers' inventories increased substantially less in the third quarter than in the second. Other retail trade inventories increased more in the third quarter than in the second, largely reflecting stepped-up accumulations in apparel and department stores.

Farm inventories increased $5.3 billion in the third quarter after increasing $1.8 billion in the second. Inventories of crops increased more than in the second quarter; the third-quarter increase primarily reflected a pickup in crop output. Inventories of livestock increased slightly after a decrease; the upswing reflected weak open-market sales.

Reflecting the third-quarter increases in nonfarm inventories and in final sales of domestic businesses, the constant-dollar ratio of nonfarm inventories to final sales edged down to 2.57, just below the 2.58-2.64 range in which it had fluctuated for 3 1/2 years.

Net exports of goods and services

Real exports increased in the third quarter after decreasing slightly in the second; real imports increased about as much in the third quarter as in the second (table 5).

[TABULAR DATA OMITTED]

The third-quarter increase in exports was more than accounted for by merchandise exports, which increased 14.7 percent after slipping 0.1 percent. Agricultural exports increased after decreasing, and nonagricultural exports increased 10.8 percent, its eighth consecutive increase.

Among nonagricultural exports, most major enduse categories were up in the third quarter; nonautomotive capital goods were up the most, despite a sharp falloff in exports of civilian aircraft. Exports of services decreased 3.6 percent after decreasing 4.7 percent.

The third-quarter increase in imports was almost entirely due to merchandise imports, which increased 15.1 percent after increasing 17.2 percent. Imports of petroleum products increased 15.8 percent after jumping 41.1 percent. Imports of nonpetroleum products increased 15.2 percent, a little more than in the second quarter; most of the third-quarter increase was in nonautomotive capital goods and in consumer goods. Imports of services increased 2.0 percent after increasing 2.9 percent.

Government purchases

Real government purchases increased 3.3 percent in the third quarter after decreasing 1.2 percent in the second (table 6). The upswing mainly reflected a turnaround in Federal Government defense purchases, but Federal nondefense purchases and State and local government purchases also contributed.

[TABULAR DATA OMITTED]

Federal defense purchases increased 6.7 percent in the third quarter after decreasing in the five preceding quarters. The increase was accounted for by military hardware, particularly missiles, and by purchases of services excluding compensation of employees.

Federal nondefense purchases increased 5.5 percent in the third quarter after increasing 3.3 percent in the second. The pickup was accounted for by faster inventory accumulation by the Commodity Credit Corporation. "Other" nondefense purchases increased 2.6 percent in the third quarter, the same rate as in the second.

State and local government purchases increased 1.4 percent in the third quarter after decreasing 0.2 percent in the second. The upswing reflected a rebound in construction.

Revisions

The preliminary third-quarter estimate of a 3.9-percent increase in real GDP is 1.2 percentage points higher than the advance estimate issued in October (table 7). All major components of GDP were revised up. The largest revisions were in exports ($10.2 billion) and in imports ($8.4 billion), primarily reflecting newly available merchandise trade data for September. A $5.5 billion upward revision in inventory investment primarily reflected the incorporation of newly available data on retail inventories for September. Personal consumption expenditures was revised up $2.3 billion, mainly reflecting revised data on retail sales for August and September. Nonresidential fixed investment was revised up $2.0 billion, mainly reflecting revised manufacturers' shipments for August and newly available data for September.

[TABULAR DATA OMITTED]

For real gross domestic purchases, the preliminary estimate of a 4.3-percent increase is 1.0 percentage point higher than the advance estimate. This revision is smaller than the revision in GDP because revisions in gross domestic purchases are not affected by revisions in exports and imports.

The increases in the fixed-weighted price indexes for gross domestic purchases and for GDP were each revised up 0.1 percentage point.

Revisions were also made to several of the third-quarter adjustments to the NIPA's for the impact of Hurricanes Andrew and Iniki. Current-dollar estimates of benefits paid by insurance companies were revised up from $49.2 billion to $60.0 billion on the basis of revised information from an insurance industry trade association. The hurricane adjustment to rental income of persons was revised from -$9.4 billion to -$4.2 billion. In addition, the hurricanes' effect on corporate profits was revised from -$40.3 billion to -$45.5 billion.

Corporate Profits

Profits from current production - profits before tax plus inventory valuation adjustment (IVA) and capital consumption adjustment (CCADJ) - decreased $18.0 billion, to $370.4 billion, in the third quarter after increasing $4.4 billion in the second (table 8). Profits from the domestic operations of financial corporations, down $23.1 billion, more than accounted for the decrease. Profits from the domestic operations of nonfinancial corporations increased $4.3 billion, reflecting increases both in the unit profits and in the real gross product of these corporations. Profits from the rest of the world increased $0.9 billion; receipts of profits from foreign affiliates of U.S. corporations decreased $0.8 billion, but payments of profits by U.S. affiliates of foreign corporations decreased more, $1.7 billion.

Cash flow from current production, a profits-related measure of internally generated funds available to corporations for investment, increased $6.0 billion after decreasing $1.2 billion. The increase in cash flow, together with a decrease in (current-dollar) nonresidential fixed investment, lifted cash flow as a percentage of nonresidential investment to 90.3 percent from 88.8 percent.

These estimates for the third quarter reflect the effects of Hurricanes Andrew and Iniki. Estimates of the quantifiable effects of the hurricanes reduced profits (mainly of financial corporations) by about $15 billion. Casualty insurance losses amounted to $60 billion, and writeoffs for the depreciated value of destroyed plant and equipment amounted to $14 billion. Receipts of $17 billion of insurance benefits and $12 billion of reinsurance paid by foreign insurers partly offset these losses.

Profits before tax and related measures. - Profits before tax (PBT) decreased $26.3 billion in the third quarter. The difference between the $18.0 billion decrease in profits from current production and the $26.3 billion decrease in PBT reflected changes in the IVA and in the CCADJ.

The IVA is an estimate of inventory profits with the sign reversed. Inventory profits decreased $5.7 billion, reflecting a slowdown in the rate at which prices of inventoried goods increased. The Producer Price Index, a major source for inventory prices, slowed to a 2.1-percent increase (annual rate) in the third quarter from a 4.2-percent increase in the second.

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 $2.7 billion in the third quarter.

Government Sector

The fiscal position of the government sector continued to deteriorate in the third quarter of 1992, as the combined deficit of the Federal Government and of State and local governments increased $7.6 billion, to $292.8 billion (table 9). The Federal Government deficit decreased $1.1 billion; the State and local government surplus decreased $8.6 billion.

[TABULAR DATA OMITTED]

Federal

The Federal Government deficit decreased to $301.9 billion, as receipts increased more than expenditures.

Receipts increased $5.7 billion in the third quarter after increasing $6.5 billion in the second. Within receipts, a sharp upturn in personal tax and nontax receipts was offset by a sharp downturn in corporate profits tax accruals. Personal tax and nontax receipts increased $12.0 billion after decreasing $4.2 billion; the second-quarter decline was attributable to a revision of the income-tax-withholding tables in March. Corporate profits tax accruals decreased $10.2 billion after increasing $6.1 billion; the downswing reflected the pattern of corporate profits, which was affected by Hurricanes Andrew and Iniki. Indirect business tax and nontax accruals increased $1.5 billion after increasing $0.6 billion, and contributions for social insurance increased $2.3 billion after increasing $3.9 billion.

Expenditures increased $4.6 billion after increasing $20.2 billion. All expenditure categories except purchases contributed to the slowdown; purchases turned up sharply and more than accounted for the third-quarter increase in expenditures.

Transfer payments slowed to a $2.2 billion increase from a $9.7 billion increase. Transfer payments to persons increased $4.5 billion after an increase of $8.0 billion. The slowdown was due to benefits paid under the Emergency Unemployment Compensation Act of 1991, which decreased $1.7 billion after increasing $0.9 billion, to hospital and supplementary medical insurance payments (medicare), which increased $3.0 billion after increasing $3.9 billion, and to supplemental security income, which increased $0.8 billion after increasing $1.5 billion. Transfer payments to the rest of the world decreased $2.4 billion after an increase of $1.6 billion.

Grants-in-aid to State and local governments was unchanged in the third quarter after increasing $9.0 billion. The slowdown was spread across most major programs, including education, aid to families with dependent children, and highways.

Subsidies less the current surplus of government enterprises decreased $6.7 billion after increasing $1.1 billion. The downturn was attributable to agricultural subsidies, which decreased $7.7 billion after increasing $0.3 billion.

Purchases increased $9.3 billion after decreasing $0.3 billion. The upturn was largely in defense purchases and reflected significant increases in research and development, in installation support, and in military equipment, notably missiles. Nondefense purchases increased $2.6 billion after increasing $1.7 billion; the acceleration was attributable to farm products held in inventory by the Commodity Credit Corporation, which increased $1.6 billion after increasing $0.6 billion.

State and local

The State and local government surplus decreased to $9.1 billion, as expenditures increased considerably more than receipts.

Receipts increased $5.7 billion in the third quarter after increasing $16.2 billion in the second. The slowdown was largely attributable to Federal grants-in-aid. Reflecting the pattern of corporate profits, corporate profits tax accruals decreased $2.3 billion after increasing $1.6 billion. Indirect business tax and nontax accruals increased $7.0 billion after increasing $3.2 billion.

Expenditures increased $14.4 billion after increasing $15.1 billion. Purchases increased $4.4 billion after increasing $6.3 billion; the deceleration was primarily in employee compensation, mostly in earnings. Purchases other than compensation increased $1.1 billion after decreasing $1.0 billion; the upswing was most pronounced in purchases of structures. All other expenditure categories combined increased $9.9 billion after increasing $8.8 billion; much of the acceleration was in transfer payments to persons.
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:3rd quarter, 1992
Author:Larkins, Daniel; Moran, Larry R.; Morris, Ralph W.
Publication:Survey of Current Business
Date:Nov 1, 1992
Words:3298
Previous Article:Foreign direct investment in the United States: establishment data for 1987.
Next Article:National income and product accounts.
Topics:

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