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The business situation.


PRELIMINARY estimates show that real GNP - a measure of U.S. production - increased at an annual rate of 0.9 percent in the fourth quarter of 1989, an upward revision from the 0.5-percent rate of increase reported in the advance estimates issued a month ago. Real gross domestic purchases - a measure of U.S. demand - increased at an annual rate of 0.1 percent in the fourth quarter, a downward revision from the 0.9-percent rate of increase reported a month ago. The difference in the revisions in the two estimates results from a sharp upward revision in net exports, a component that is included in GNP but not in gross domestic purchases.

Revisions in prices were quite small: The GNP price index (fixed weights) was revised down 0.2 percentage point to an annual rate of 3.6 percent, and the gross domestic purchases price index (fixed weights) was revised down 0.1 percentage point to 4.0 percent.(1)

Although the third-quarter revision in real GNP was relatively small, revisions in several of the major components were large. Net exports was revised up $13.6 billion; fixed investment and inventory investment were revised down $6.2 billion and $6.4 billion, respectively (see table 1 on page 17).

Within net exports, a $5.2 billion upward revision in exports stemmed from upward revisions in both goods (largely in the consumer goods and "other" goods categories) and services (in investment income). An $8.5 billion downward revision in imports was concentrated in goods (about one-half in petroleum).

The downward revision in fixed investment was mainly in producers' durable equipment (mostly in the information processing equipment and "other" equipment categories). Residential investment was also revised down (about one-half in multifamily construction). The downward revision in inventory investment - that is, change in business inventories - was more than accounted for by a $9.0 billion downward revision in nonfarm inventories (largely in manufacturing inventories).

Among other GNP components, a $3.3 billion upward revision in personal consumption expenditures was more than accounted for by non-durables (mostly in gasoline and oil).

Impact of the revisions. - The broad picture of the economy sketched in last month's "Business Situation" was not greatly altered by the revisions. Real GNP and real gross domestic purchases both increased at a considerably slower pace in the fourth quarter than they had in the third.

The preliminary estimates do present a picture of a somewhat more balanced economy in the fourth quarter than was indicated in the advance estimates. Personal consumption expenditures and net exports now show increases instead of declines, and the increase in inventory investment is smaller than was shown previously. Fixed investment, however, is considerably weaker than was shown previously: Nonresidential investment now shows a larger decline, and residential investment now shows a slight decline instead of an increase.

(1). The regularly featured estimates of real GNP and GNP prices are based on 1982 weights. Alternative measures based on more current weights are shown in tables 3 and 4 on page 18.
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Title Annotation:fourth quarter of 1989
Publication:Survey of Current Business
Date:Feb 1, 1990
Previous Article:U.S. affiliates of foreign companies: operations in 1988.
Next Article:Improving the Quality of Economic Statistics.

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