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The business situation.

The "final" estimate of growth in real gross domestic product (GDP) for the third quarter of 1993 is 2.9 percent, 0.2 percentage point higher than the "preliminary" estimate reported in last month's Survey of Current Business (table 1).(1) Change in business inventories, net exports, and fixed investment were each revised up by small amounts; personal consumption expenditures and government purchases were revised little. The upward revision in change in business inventories was more than accounted for by nonfarm inventories; farm inventories was revised down. The upward revision in net exports was almost entirely accounted for by an upward revision in exports. The upward revision in fixed investment was accounted for by residential investment.

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The final estimate of real gross domestic purchases shows a 3.7-percent increase, 0.1 percentage point higher than the preliminary estimate. The revision in gross domestic purchases was smaller than the revision in GDP because gross domestic purchases does not include net exports, which was revised up.

The final estimates of the fixed-weighted price indexes for gross domestic purchases and for GDP show increases of 1.8 percent and 2.1 percent, respectively, little changed from the preliminary estimates.

Gross national product (GNP). - Real GNP increased 3.3 percent in the third quarter (table 2). GNP equal GDP plus receipts of factor income from the rest of the world less payments of factor income to the rest of the world. In the third quarter, receipts increased $2.1 billion, and payments decreased $3.4 billion. For receipts, the increase was more than accounted for by profits.

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For payments, the decrease was accounted for by both profits and interest income.

Real GNP on a command basis increased more than real GNP - 3.7 percent, compared with 3.3 percent - reflecting an improvement in the terms of trade.(2) In the second quarter, command-basis GNP had increased at the same rate as GNP - 1.9 percent - reflecting little change in the terms of trade. The larger third-quarter increase in command-basis GNP than in GNP continues a trend since the most recent business-cycle trough (first quarter of 1991); over the 10 quarters since the trough, command-basis GNP increased 2.5 percent (average annual rate), compared with a 2.3 percent increase in GNP.

Corporate Profits

Profits from current production - profits before tax (PBT) plus inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj) - increased $10.4 billion in the third quarter after increasing $26.0 billion in the second (table 3). Profits from domestic operations of financial corporations increased $2.6 billion after increasing $4.0 billion. Profits from domestic operations of nonfinancial corporations increased $3.2 billion after increasing $22.9 billion. The third-quarter increase in profits of nonfinancial corporations reflected an increase in the real product of these corporations; profits per unit were unchanged. Profits from the rest of the world increased $4.6 billion after decreasing $0.9 billion.

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Cash flow from current production, a profits-related measure of internally generated funds available for investment, increased $21.8 billion after increasing $15.6 billion. As a percentage of nonresidential investment, cash flow remained high, at 86.9 percent.

Profits by industry. - Industry profits are measured by PBT with IVA because estimates of the CCAdj by industry do not exist. PBT with IVA increased $11.4 billion in the third quarter after increasing $26.4 billion in the second. Profits from the domestic operations of financial and nonfinancial corporations slowed markedly, while profits from the rest of the world turned up.

The slowdown in the profits of nonfinancial industries was more than accounted for by downturns in the profits of motor vehicle manufacturing, petroleum refining, and wholesale trade. The slowdown in the profits of financial industries was more than accounted for by insurance carriers.

In profits from the rest of the world, receipts of profits from foreign affiliates of U.S. corporations increased $2.6 billion, and payments of profits by U.S. affiliates of foreign corporations decreased $2.0 billion. Profits of manufacturing affiliates dominated the changes in both receipts and payments.

PBT and related measures. - PBT decreased $1.8 billion in the third quarter. The difference between this decrease and the $10.4 billion increase in profits from current production is more than accounted for by an increase in the IVA, which is an estimate of inventory profits with the sign reversed. Inventory profits decreased $13.2 billion. Components of the Producer Price Index (PPI) are the major measures of inventory prices; the PPI decreased at an annual rate of 2.0 percent (not seasonally adjusted) in the third quarter after increasing at an annual rate of 3.8 percent in the second.

Looking Ahead . . .

* Foreign-Owned U.S. Manufacturing Establishments. An article examining the characteristics of foreign-owned manufacturing plants in the United States will appear in the January Survey. The article will use data for 1989-90 that were derived by linking BEA enterprise-level data on foreign direct investment in the United States with establishment-level data from the Census Bureau's annual survey of manufactures.

(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. (2.) 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 values of receipts and of most payments of factor income are deflated by the implicit price deflator for net domestic product. In estimating command-basis GNP - a measure of U.S. production in terms of its purchasing power - the current-dollar values of exports of goods and services and of receipts of factor income are deflated by the implicit price deflator for imports of goods and services and payments of factor income.
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Title Annotation:third quarter 1994
Author:Moran, Larry R.; Larkins, Daniel
Publication:Survey of Current Business
Date:Dec 1, 1993
Words:1000
Previous Article:Characteristics of foreign-owned U.S. manufacturing establishments.
Next Article:National income and product accounts: selected NIPA tables.
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