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The business situation.

ACCORDING TO advance estimates of the national income and product accounts (NIPA's), real gross domestic product (GDP) increased 3.8 percent in the fourth quarter of 1992 after increasing 3.4 percent in the third quarter (chart 1).(1) The step-up in growth reflected upswings in the production of structures and motor vehicles; the production of services and of goods other than motor vehicles increased less in the fourth quarter than in the third (table 1). [TABULAR DATA 1 OMITTED]

The effect on fourth-quarter GDP of rebuilding in the aftermath of Hurricanes Andrew and Iniki cannot be determined with any degree of precision because the effects are largely embedded in the source data. However, the effects are likely to be very small (see the "Business Situation" in the October and November 1992 SURVEYS).

Real gross domestic purchases increased 3.9 percent in the fourth quarter, about the same rate as in the third (table 2). Unlike GDP, gross domestic purchases excludes exports of goods and services and includes imports of goods and services. [TABULAR DATA 2 OMITTED]

Although gross domestic purchases increased at about the same rate in the fourth quarter as in the third, the composition of the increase was different in the two quarters. Inventory investment (that is, change in business inventories) decreased in the fourth quarter; in the third quarter it had increased. Real final sales to domestic purchasers increased 4.6 percent in the fourth quarter after increasing 3.5 percent in the third. All major components except government purchases contributed to the fourth-quarter acceleration in final sales.

The fixed-weighted price index for gross domestic purchases increased 2.8 percent in the fourth quarter after increasing 2.5 percent in the third. The fixed-weighted price index for GDP increased 3.2 percent after increasing 2.1 percent.

Motor vehicles.--Output of motor vehicles increased 14.6 percent in the fourth quarter after decreasing 7.7 percent in the third, and sales of motor vehicles jumped 24.8 percent after decreasing 10.6 percent. Trucks more than accounted for the increase in output and accounted for three-fourths of the increase in sales. (Auto and truck output, sales, and inventories are shown in tables 8.3-8.6 of the "Selected NIPA Tables.")

In units, domestic car production increased to 5.8 million (seasonally adjusted annual rate) in the fourth quarter after falling to 5.6 million in the third. Domestic car sales increased to 6.4 million in the fourth quarter after slipping to 6.2 million in the third. Sales of imported cars, at 2.0 million, were unchanged in the fourth quarter. Domestic car inventories, at 1.4 million at the end of the fourth quarter, were little changed from the end of the third. The inventory-sales ratio edged down to 2.6 in the fourth quarter from 2.7 in the third.

The fourth-quarter increase in sales of domestic cars was more than accounted for by sales to consumers and reflected improvements in many of the factors that underlie changes in total consumer spending. Real disposable personal income increased 3.8 percent, the largest increase in three quarters. The unemployment rate declined--for the first time in three quarters--to 7.3 percent. The Index of Consumer Sentiment (prepared by the University of Michigan's Survey Research Center) jumped to its highest level in 2 1/2 years.

Factors specific to the motor vehicle industry were also favorable to consumer purchases of cars. Sales-incentive programs remained as attractive in the fourth quarter as they had been in the third; interest rates remained low; and new car prices (as measured by the Consumer Price Index) increased at an annual rate of only 0.9 percent in the fourth quarter after increasing 3.2 percent in the third.

Sales of new trucks jumped to 5.1 million units in the fourth quarter after decreasing to 4.7 million in the third. Sales of domestic light trucks, which are influenced by many of the same factors that influence consumer purchases of cars, increased to 4.6 million from 4.2 million. Sales of imported light trucks and sales of other trucks were unchanged at 0.2 million and 0.3 million, respectively.

The NIPA's in 1992.--From 1991 to 1992, real GDP increased 2.1 percent; from 1990 to 1991, in contrast, it decreased 1.2 percent. The 1992 increase was the largest annual increase since 1989, but it was relatively modest for the early stages of an economic recovery. Since the business cycle trough in the first quarter of 1991, GDP has increased at an average annual rate of 2.2 percent; over comparable periods in the five preceding recoveries, GDP grew, on average, at about twice that rate.

The turnaround in GDP in 1992 reflected upturns in the production of goods and of structures; the production of services increased about the same amount in 1992 as in 1991. In goods production, both the 1992 increase and the 1991 decrease mainly reflected the production of durables. In structures, the 1992 increase was more than accounted for by residential construction; the 1991 decrease had been split about evenly between residential and nonresidential construction.

Gross domestic purchases increased 2.5 percent in 1992 after decreasing 1.8 percent in 1991. All of the major components' of gross domestic purchases except government purchases contributed to the turnaround.

Personal consumption expenditures responded to an upswing in income; real disposable personal income increased 2.1 percent in 1992 after decreasing 0.2 percent in 1991.

Similarly, nonresidential fixed investment responded to upswings in sales and in corporate profits. Real final sales to domestic purchasers increased 2.2 percent in 1992 after decreasing 1.4 percent in 1991. Corporate profits are not yet available for the fourth quarter of 1992; however, for the first three quarters of the year, profits averaged 10.4 percent more than in 1991.

Residential investment responded to the upswing in consumer income and to a continued downtrend in interest rates; the mortgage commitment rate dropped 85 basis points in 1992, to 8.4 percent, after dropping about the same amount as in 1991.

Inventory investment probably reflected, at least in part, an anticipated upswing in sales.

Prices

As noted earlier, the fixed-weighted price index for gross domestic purchases increased 2.8 percent in the fourth quarter after increasing 2.5 percent in the third (table 3). 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 3.0 percent in the fourth quarter after increasing 2.3 percent in the third (chart 2). [TABULAR DATA 3 OMITTED]

Prices of personal consumption expenditures increased 3.1 percent in the fourth quarter after increasing 2.6 percent in the third. The step-up was more than accounted for by prices of "other" personal consumption expenditures, which increased 3.3 percent after increasing 2.5 percent. Prices of furniture and household equipment and of clothing and shoes turned up, and prices of most services accelerated. In services, transportation posted the largest price increase, which mainly reflected higher air fares. Prices of food increased at about the same rate in the fourth quarter as in the third. Energy prices decelerated. The deceleration reflected downswings in the prices of fuel oil and coal and of gasoline and oil; prices of electricity and natural gas, in contrast, increased more in the fourth quarter than in the third.

Prices of nonresidential fixed investment increased 1.1 percent in the fourth quarter after increasing 1.4 percent in the third. Prices of nonresidential structures increased more in the fourth quarter than in the third. Prices of producers' durable equipment decreased slightly after a small increase. Most of the downward pressure on equipment prices came from computers; in addition, prices of transportation equipment dipped slightly, and prices of industrial and "other" equipment increased less than in the third quarter.

Prices of residential investment increased 4.6 percent in the fourth quarter after increasing 3.8 percent in the third.

Prices of government purchases increased 2.3 percent in the fourth quarter, about the same as in the third. Prices paid by the Federal Government increased 2.5 percent after increasing 3.6 percent; the deceleration was more than accounted for by prices of national defense purchases of petroleum, ammunition, and services. Prices paid by State and local governments increased 2.1 percent after increasing 1.4 percent; the step-up was accounted for by employee compensation and prices of structures.

The price index for GDP, which measures prices paid for goods and services produced in the United States, increased 3.2 percent in the fourth quarter after increasing 2.1 percent in the third. This index differs from the price index for gross domestic purchases because it includes prices of exports and excludes prices of imports. Prices of exports increased 0.6 percent in the fourth quarter after increasing 1.7 percent in the third; prices of imports decreased 0.4 Percent after increasing 5.6 percent.

Personal income

Real disposable personal income (DPI) increased 3.8 percent in the fourth quarter after increasing 0.5 percent in the third (chart 3). The acceleration was accounted for by a step-up in current-dollar DPI, which increased 7.3 percent in the fourth quarter after increasing 2.0 percent in the third.

Personal income increased $93.7 billion in the fourth quarter after increasing $33.1 billion in the third (table 4). The acceleration was largely due to an upswing in farm proprietors' income and step-ups in wage and salary disbursements and in nonfarm proprietors' income. [TABULAR DATA 4 OMITTED]

Wage and salary disbursements increased $43.8 billion in the fourth quarter after increasing $22.2 billion in the third. Wages and salaries in both private industry and government increased more in the fourth quarter than in the third. The step-up in private industry was concentrated in the manufacturing and services industries, but the other major private industries also contributed. In manufacturing, wages and salaries were boosted $3.9 billion in the fourth quarter by bonus payments to employees in the motor vehicle industry. In services, accelerated bonus payments in the securities industry added $6.0 billion to the fourth-quarter increase; typically, most bonuses in this industry are paid in January and are based on profits earned in the preceding year. In government, most of the step-up was accounted for by retirement incentive payments to U.S. Postal Service employees.

Farm proprietors' income increased $16.6 billion in the fourth quarter after decreasing $7.0 billion in the third; the changes reflected the pattern of Federal farm subsidies and the effects of Hurricanes Andrew and Iniki. Federal farm subsidies increased $8.7 billion in the fourth quarter after decreasing $6.4 billion in the third; the upswing reflected increases in Conservation Reserve Program payments and in deficiency payments. The hurricanes reduced farm proprietors' income $3.0 billion in the third quarter; this estimate includes crop losses and uninsured losses to residential and business property. Excluding subsidies and the effects of the hurricanes, farm proprietors' income increased $5.5 billion in the fourth quarter after increasing $2.4 billion in the third; the acceleration reflected increases in market prices and farm production.

Nonfarm proprietors' income increased $13.2 billion in the fourth quarter after increasing $6.0 billion in the third. The step-up primarily reflected increases in residential construction and retail sales.

Rental income of persons increased $7.1 billion in the fourth quarter after increasing $3.1 billion in the third. In the third quarter, uninsured losses resulting from the hurricanes reduced rental income $4.1 billion (such losses are treated as expenses in calculating rental income).

Personal interest income declined for the fourth consecutive quarter. The declines reflected recent decreases in interest rates. Personal outlays--largely personal consumption expenditures--increased about the same amount as disposable personal income in the fourth quarter; thus, personal saving changed little. The personal saving rate dipped 0.1 percentage point to 4.5 percent in the fourth quarter.

Looking Ahead...

* NIPA Wealth Estimates. Fixed Reproducible Tangible Wealth in the United States,. 1925-89, which contains annual estimate of the stock of privately owned and government-owned durable equipment and structures and of durable goods owned by consumers, is slated to be available in mid-February from the U.S. Government Printing Office. (For order information, see the inside back cover of this issue.)

Fourth Quarter 1992 Advance GDP Estimate: Source Data and Assumptions

The advance GDP estimate for the fourth quarter is based on the following major source data, some of which are subject to revision. (The number of months for which data were available is shown in parentheses.)

Personal consumption expenditures. Sales of retail stores (3) and unit auto and truck sales (3);

Nonresidential fixed investment. Unit auto and truck sales (3), construction put in place (2), manufacturers' shipments of machinery and equipment (2), and exports and imports of machinery and equipment (2);

Residential investment: Construction put in place (2) and housing starts (3);

Change in business inventories: Manufacturing and trade inventories (2) and unit auto and truck inventories (3);

Net exports of goods and services. Merchandise exports and merchandise imports (2);

Government purchases. Military outlays (3), other Federal outlays (2), State and local construction put in place (2), and State and local employment (3);

GDP prices. Consumer Price Index (3), Producer Price Index (3), price indexes for nonpetroleum merchandise exports and imports (3), and values and quantities of petroleum imports (2).

In addition to incorporating the above source data, BEA makes assumptions for the source data that are not yet available.(1) The following paragraphs, based on a table made available shortly after release of each advance estimate, highlight the source data incorporated and the assumptions made in preparing the estimates of the components that contributed the most to the 3.8-percent increase in real GDP in the fourth quarter.

For personal consumption expenditures, the estimate of goods was based on 3 months of Census Bureau sales of retail stores and trade-source unit auto and truck sales. The estimates of service components that increased were based partly on BEA projections based on past trends and partly on 3 months of source data--primarily trade-source shares traded on securities markets, and Bureau of Labor Statistics (BLS) employment and earnings in service industries. The price data used to prepare the constant-dollar estimates of both goods and services were based primarily on 3 months of BLS consumer price indexes.

For nonresidential investment, the estimate of structures was largely based on 2 months of Census Bureau construction put in place. For December, BEA assumed a slight increase. For producers' durable equipment (PDE), the estimate was based largely on 3 months of trade-source unit auto and truck sales and 2 months of Census Bureau manufacturer's shipments and exports and imports of machinery and equipment. For December, BEA assumed that equipment purchases were about equal to the November estimate. The price data used to prepare the constant-dollar estimates of structures were based largely on a trade source cost index and on 2 months of Census Bureau housing prices. For December, BEA assumed a slight increase over November. The price data used to prepare the constant-dollar estimates of PDE Were based largely on 3 months of BLS Producer Price Indexes.

For residential investment, the estimate was based largely on 2 months of Census Bureau construction put in place. For December, BEA assumed an increase about equal to the October to November change; this assumption was based largely on 3 months of Census Bureau housing starts. The price data used to prepare the constant-dollar estimates of residential investment were based largely on 2 months of Census Bureau housing prices. For December, BEA assumed a slight increase over November. (1.) Quarterly estimates in the national income and product accounts are expressed 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 1897 dollars. (1.) A table of assumptions is available shortly after the release of each advance estimate on the Department of Commerce's Economic Bulletin Board or by request from BEA. For additional information, see "Key Source Data and Assumptions for the Advance Estimates of GNP: Easier Access and Redesigned Format" in the July 1988 Survey of Current Business.
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Title Annotation:fourth quarter 1992; includes related article
Author:Larkins, Daniel; Moran, Larry R.; Morris, Ralph W.
Publication:Survey of Current Business
Date:Jan 1, 1993
Words:2730
Previous Article:U.S. international transactions, third quarter 1992.
Next Article:National income and product accounts.
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