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The business situation.

The BUSINESS SITUATION PROFITS from current production--profits before tax with inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj)--increased $9 billion in the third quarter, following a $3-1/2 billion decline in the second.

Domestic profits of nonfinancial corporations increased $7 billion, following a $1/2 billion increase, reflecting higher real gross corporate product and higher profits per unit. With respect to the higher unit profits, an increase in unit price more than offset increases in unit labor and non-labor costs.

Domestic profits of financial corporations changed little--up $1/2 billion--following a $2 billion increase, and profits from the rest of the world rebounded $2 billion, following a $5-1/2 billion decline.

Profits before tax.--As explained in the following section, profits before tax (PBT) and a number of other profits-related estimates have been adjusted for the first three quarters of 1986 to reflect retroactive provisions of the Tax Reform Act of 1986; the adjusted figures are used in this discussion.

PBT increased $12-1/2 billion in the third quarter, following an increase of $5 billion in the second. The larger third-quarter increase reflected a $7-1/2 billion swing in profits from the rest of the world; PBT of domestic corporations increased about $10-1/2 billion in both quarters.

The difference between the $12-1/2 billion increase in PBT and the $9 billion increase in profits from current production is primarily due to the IVA, which declined $4-1/2 billion; the CCAdj increased $1/2 billion. These adjustments convert depreciation and inventories reported by business to those used by BEA in the estimation of profits from current production. The decline in the IVA, from $10-1/2 billion to $6 billion, reflected smaller decreases in inventory prices than in the second quarter.

Profits with IVA, but without CCAdj.--The quarterly measure of profits available by industry increased $8 billion, following a decline of $1/2 billion. Profits of domestic non-financial corporations increased $6-1/2 billion, as increased trade profits more than offset a decline in manufacturing profits; in the second quarter, when domestic profits of nonfinancial corporations had increased $3-1/2 billion, the opposite occurred: increased manufacturing profits more than offset lower trade profits.

Both retail and wholesale trade contributed to the increase in trade profits in the third quarter. Profits of retailers increased moderately after a second-quarter decline; retailers' profits have seesawed in this fashion--up one quarter and down the next--for more than a year. Profits of wholesalers increased sharply, rebounding to year-earlier levels after several quarters of weakness. The increase reflected the first substantial increase in sales in a number of quarters.

In manufacturing, sizable declines were widespread among durables producers, although the largest of the manufacturing declines was in petroleum, a nondurable; a number of corporations in this industry engage in the extraction of crude oil as well as in refining, and their profits were damped by lower prices and sluggish production of crude.

Rest-of-the-world profits, which are expressed on a net (i.e., inflows minus outflows) basis, increased $2 billion, following a $5-1/2 billion decline, as outflows declined more than inflows.
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Title Annotation:3rd quarter, 1986
Publication:Survey of Current Business
Date:Dec 1, 1986
Previous Article:Foreign transactions in the national income and product accounts: an overview.
Next Article:Plant and equipment expenditures: quarters of 1986, first and second quarters of 1987, year 1987.

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BIC GROUP: 3rd quarter 2003 net sales at constant currencies: +5.0%; 9 months 2003 net sales at constant currencies: +2.7%.

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