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The business situation.

According to the advance estimates of the national income and product accounts (NIPA's), production increased more in the third quarter of 1993 than in the second quarter, purchases increased at about the same rate in both quarters, and the rate of inflation slowed.

Real gross domestic product (GDP) increased 2.8 percent in the third quarter after increasing 1.9 percent in the second (chart 1).(1) Goods other than motor vehicles, services, and structures all contributed to the step-up (table 1). In contrast, motor vehicles decreased much more in the third quarter than in the second; the third-quarter weakness was in autos.

[TABULAR DATA OMITTED]

Farm product decreased sharply in the third quarter. Most of the decrease was due to floods in the Midwest and drought in the Southeast.(2) (The floods and drought also had substantial effects on several components of personal income, as described later in this article).

Real gross domestic purchases, which consists of the change in business inventories plus final sales to domestic purchasers, increased 3.2 percent in the third quarter, about the same as in the second (table 2). The change in business inventories subtracted $5.7 billion from the third-quarter change in gross domestic purchases, as inventory accumulation slowed to $7.3 billion from $13.0 billion. The slowdown was more than accounted for by farm inventories, which dropped $10.6 billion after falling $4.1 billion; $7.5 billion of the drop was due to the floods and drought.

Growth of final sales to domestic purchasers slowed to 3.7 percent from 4.4 percent, reflecting a slowdown in nonresidential fixed investment (mainly in purchasers of transportation equipment) and a downturn in government purchases (mainly in national defense and in State and local government structures). The relative weakness in these two components was partly offset by a step-up in personal consumption expenditures and an upturn in residential investment.

[TABULAR DATA OMITTED]

The fixed-weighted price index for gross domestic purchases increased 1.8 percent in the third quarter after increasing 2.9 percent in the second. The fixed-weighted price index for GDP increased 2.1 percent after increasing 2.8 percent.

Motor vehicles. - Output of motor vehicles dropped 19.4 percent in the third quarter after decreasing 4.9 percent in the second; the drop was accounted for by autos (table 3).

[TABULAR DATA OMITTED]

Sales of motor vehicles decreased 12.6 percent after jumping 32.9 percent; both auto and truck sales contributed to the downturn. About 50 percent of the third-quarter decrease in motor vehicle sales was accounted for by business; consumers accounted for about 40 percent, and government accounted for about 10 percent.

The falloff in sales to businesses followed a jump in sales in the second quarter - the largest increase in more than 3 years. The falloff in sales to consumers is consistent with the small increase in real disposable personal income, 1.1 percent, and with the second consecutive decline in the Index of Consumer Sentiment (prepared by the University of Michigan's Survey Research Center). However, the unemployment rate, another factor influencing consumer spending, fell to 6.7 percent, its lowest level in 2 1/2 years.

Inventories of motor vehicles decreased more in the third quarter than in the second. Most of the third-quarter drop was accounted for by autos. Declines in unit sales and inventories of new cars left the inventory-sales ratio for new cars unchanged at 2.6, slightly higher than the traditional industry target of 2.4. The fixed-weighted price index for gross domestic purchases increased 1.8 percent in the third quarter after increasing 2.9 percent in the second (table 4, chart 2). The price index for gross domestic purchases less food and energy, which is sometimes used to gauge the underlying rate of inflation, increased 2.3 percent after increasing 3.2 percent; about half of the slowdown was due to housing and medical care services in personal consumption expenditures (PCE).

[TABULAR DATA OMITTED].

PCE prices increased 1.4 percent after increasing 2.9 percent. A sharp slowdown in food prices largely reflected the prices of meats, poultry, and eggs; in contrast, prices of fresh fruits turned up. Energy prices decreased more than in the second quarter; prices of fuel oil and coal turned down, those of gasoline and oil decreased more than in the second quarter, and those of electricity and gas slowed. In "other" PCE prices, slowdowns or downturns were widespread, and included, as just mentioned, prices of housing and medical care services; two components of "other" PCE that did not follow the general pattern were clothing and shoes, prices of which changed little after decreasing, and transportation services, prices of which increased somewhat more than in the second quarter.

Prices of nonresidential fixed investment increased 2.0 percent after increasing 2.5 percent. The slowdown was accounted for by prices of producer's durable equipment. Prices of information processing equipment decreased, though less than in the second quarter, and the rate of price increase for other major categories of equipment slowed.

Prices of residential investment increased 5.3 percent, a little more than in the second quarter.

Prices of government purchases increased 2.2 percent after increasing 2.6 percent. The slowdown was due to the prices paid by State and local governments. Prices paid by these governments for durable good and for structures slowed, and prices paid for nondurable goods turned down; these movements more than offset a step-up in prices paid for services. Prices paid by the Federal Government increased at about the same rate as in the second quarter; a slowdown in prices of national defense purchases, much of it reflecting a downturn in prices of petroleum products, was offset by a step-up in prices of nondefense purchases (especially services other than compensation).

The price index for GDP, which measures the prices paid for goods and services produced in the United States, increased 2.1 percent after increasing 2.8 percent. The increase in GDP prices was somewhat larger than the increase in prices of gross domestic purchases in the third quarter because GDP prices include prices of exports, which increased, and exclude prices of imports, which decreased. The decrease in import prices mainly reflected a sharp drop in prices of petroleum and petroleum products. Real disposable personal income (DPI) increased 1.1 percent in the third quarter after increasing 5.8 percent in the second (chart 3). The deceleration was more than accounted for by a slowdown in current-dollar DPI, which increased 2.3 percent after increasing 8.5 percent. The personal saving rate fell 0.7 percentage point to 3.7 percent, reflecting a larger increase in current-dollar personal outlays - mainly PCE - than in current-dollar DPI.

Personal income increased $36.5 billion in the third quarter after increasing $118.5 billion in the second (table 5). The second-quarter increase largely reflected the effects of accelerated bonus payments. Bonuses - totaling $80 billion - that typically would have been paid in the first quarter of 1993 were paid instead in the fourth quarter of 1992. As a result, personal income jumped in the fourth quarter, plummeted in the first, and rebounded sharply in the second; in the third quarter, the change in personal income was not affected by the bonuses.(3) The third-quarter floods in the Midwest and drought in the Southeast further complicate the personal income picture. Many of the effects of these disasters are embedded in the source data; however, where they were not adequately captured by the source data, BEA prepared adjustments to personal income that total $12.3 billion.

Wage and salary disbursements increased $31.6 billion after increasing $108.4 billion. However, excluding the effects of the accelerated bonus payments, wages and salaries in private industry increased only slightly less than in the second quarter. Government wages and salaries increased more than in the second quarter; the third-quarter increase partly reflected retirement incentive payments to employees of the U.S. Department of Defense.

Farm proprietor's income decreased $20.0 billion after decreasing $8.7 billion. Income was reduced by adjustments of $9.1 billion for crop damage and of $0.7 billion for uninsured losses to farm residential and business property as a result of the floods and drought. Federal farm subsidy payments decreased $11.0 billion after decreasing $7.4 billion.

Nonfarm proprietors' income increased $3.8 billion, about the same as in the second quarter. Income was reduced by an adjustment of $0.7 billion for uninsured losses to nonfarm business property due to the floods.

Rental income of persons increased $1.2 billion after increasing $5.2 billion. Income was reduced by an adjustment of $2.4 billion for uninsured losses to nonfarm residential property resulting from the floods (such losses are treated as expenses in the calculation of rental income).

Personal contributions for social insurance, which are subtracted in deriving the personal income total, increased $2.3 billion after increasing $7.9 billion. Personal tax and nontax payments increased $9.2 billion after increasing $23.9 billion.

(1.) Quarterly estimates in the NIPA's 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. (2.) BEA does not attempt to quantify the total impact of disasters, such as floods and drought, but it does adjust for the effects of disasters when these effects are not adequately captured in the source data. Adjustments were prepared for the effects of the floods and drought on farm output and on several components of personal income. For a description of the methodology used to compute the adjustments, see the box "Impact of the 1993 Floods and Drought," Survey of Current Business 73 (September 1993): 2. In brief. The U.S. Department of Agriculture issued a forecast of the physical quantity of farm output in June 1993 and another (substantially lower) forecast in August 1993. The difference between the two forecasts is assumed to reflect the effects of the floods and drought. Three-fourths of these effects were allocated to the third quarter and the remainder to the fourth. (3) For a detailed explanation of the effects of the bonus payments see "Annual Revision of the U.S. National Income and Product Accounts," Survey 73 (August 1993): 28.
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Title Annotation:third quarter 1993
Author:Larkins, Daniel; Moran, Larry R.; Morris, Ralph W.
Publication:Survey of Current Business
Date:Oct 1, 1993
Words:1723
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