Printer Friendly

The business situation.

the BUSINESS SITUATION

PROFITS and related measures registered robust increases in the third quarter. Profits from current production --profits before tax with inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj)--increased $18 billion, following a $3 billion increase in the second quarter, and profits before tax (PBT) increased $16 billion, following an increase of $11 1/2 billion.

The third-quarter increase in PBT was somewhat smaller than the increase in profits from current production because inventory profits declined, mainly as the result of a drop in wholesale food prices and a deceleration in petroleum prices. (Inventory profits, which are included in PBT but not in profits from current production, arise when the current cost of replacing inventories exceeds the cost at which they had been acquired.) In the national income and product accounts (NIPA's), the IVA is an estimate of inventory profits with sign reversed. In the third quarter, the IVA increased $2 1/2 billion, to negative $17 1/2 billion.

Cash flow from current production, a profits-related measure of the internally generated funds available to corporations for investment, increased $10 billion after three consecutive quarterly declines.

Nonfinancial corporations.--Domestic profits of nonfinancial corporations dominated the movement in profits in both the second and third quarters; changes in domestic profits of financial corporations and in profits from the rest of the world were small.

Both real gross product and profits per unit of nonfinancial corporations increased in the third quarter. The increase in product was moderate; the increase in unit profits, large. The increase in unit profits was associated with a modest increase in unit prices and flat unit costs (NIPA table 7.18). Profit margins increased along with unit profits. The profit margin--calculated as unit profits as a percent of unit prices--increased to 10 percent from the 9 1/2 percent it had been at for almost 2 years. (The highest profit margin registered thus far in the current expansion was 10 1/2 percent, in the second quarter of 1984.)

Manufacturing profits surged $15 billion in the third quarter, following a $10 billion increase in the second. Prior to these two increases, which took the level of profits to a record $100 1/2 billion, manufacturing profits had been drifting erratically sideways for at least 2 years. All but one of the manufacturing industries for which quarterly profits figures are published in NIPA table 6.18B registered third-quarter increases, most of them large. The one manufacturing industry in which profits did not increase was motor vehicles, which posted a $3 1/2 billion decline that presumably reflected, at least in part, the substantial liberalization of motor vehicle sales-incentive programs by manufacturers in the quarter. (See "Motor Vehicles, Model Year 1987," in the November SURVEY.) In the other manufacturing industries, increases took profits either to record levels or, at least, to levels that had not been reached in a year or more. Record profits were registered in fabricated metals, food, and chemicals. Electrical machinery profits were higher than at any time since the second quarter of 1986; petroleum, since the fourth quarter of 1985; and nonelectrical machinery, since the second quarter of 1984.

Trade profits rebounded after a very sharp drop in the second quarter. In retail trade, profits of food stores and auto dealers more than accounted for the third-quarter increase. In food, higher profit margins more than offset a drop in constant-dollar sales; for auto dealers, the increase in profit was another reflection of the manufacturers' sales-incentive programs. In wholesale trade, two factors contributing to the increase in profits were a deceleration in inventory prices and an increase in constant-dollar sales.

Third-quarter NIPA revisions

Table 2 on page 15 shows the second revisions of the NIPA estimates for the third quarter of 1987.
COPYRIGHT 1987 U.S. Government Printing Office
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1987 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:third quarter of 1987
Publication:Survey of Current Business
Date:Dec 1, 1987
Words:628
Previous Article:Regional nonfarm personal income in the current economic expansion.
Next Article:National income and product accounts tables.
Topics:


Related Articles
The business situation.
The business situation.
The business situation.
The business situation.
The business situation.
The business situation.
The business situation.
The business situation.
The business situation.
The business situation.

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