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The business situation.


Final estimates show that real GNP - a measure of U.S. production - increased at an annual rates of 0.4 percent in the second quarter of 1990, a downward revision from the 1.2-percent rate of increase reported in the preliminary estimates issued a month ago.(1) The largest downward revisions were in net exports ($4 1/2 billion) and the change in business inventories ($2 billion).

The increase in real gross domestic purchases - a measure of U.S. demand - was revised down to 1.3 percent from 1.6 percent. The difference in the size of the revisions in the two estimates is traceable to the downward revision in net exports; net exports is included in GNP but not in gross domestic purchases.

The second-quarter increase in the GNP price index (fixed weights) was unrevised at 3.9 percent, and the increase in the gross domestic purchases price index (fixed weights) was revised down 0.1 percentage point to 2.9 percent.

Corporate Profits

Profits from current production - profits before tax with inventory valuation adjustment and capital consumption adjustment - increased $10 billion, to $306 1/2 billion, in the second quarter of 1990 after increasing $6 billion in the first (table 1).

Table : Table 1. - Corporate Profits
 Change from Level
 1990:I 1990:II
 Billions of dollars
Profits from current production 5.9 9.8 306.6
 Domestic 9.9 13.7 257.6
 Financial 9.0 2.5 21.8
 Nonfinancial .7 11.3 235.8
 Rest of the world -4.0 -4.0 48.9
 Inventory valuation adjustment 3.1 10.9 -0.5
 Capital consumption adjustment -4.3 -3.6 7.7
 Profits before tax 7.1 2.4 299.3
 Profits tax liability 6.4 3.2 133.1
 Profits after tax .8 -1.0 166.1

Profits by industry:
 Profits before tax with IVA 10.2 13.3 298.8
 Domestic 14.2 17.3 249.9
 Financial 9.2 2.1 18.2
 Nonfinancial 5.0 15.2 231.7
 Manufacturing 6.4 10.7 100.8
 Trade -2.7 5.2 44.4

Transportation and public
 utilities 1.3 .4 41.9
 Other 0 -1.1 44.6
 Rest of the world -4.0 -4.0 48.9
 Receipts (inflows) -.3 -1.6 59.9
 Payments (outflows) 3.7 2.3 10.9

Unit prices, costs, and profits of

domestic nonfinancial corporations:
 Unit price 0.011 0.013 1.213
 Unit labor cost .008 .009 .812
 Unit nonlabor cost .003 0 .304
 Unit profits from current production .001 .004 .097

NOTE. - Levels of these and other profits series are found in tables 1.14, 1.16, 6.18b, and 7.18 of the "Selected NIPA Tables."

IVA Inventory valuation adjustment.

Profits of domestic nonfinancial corporations increased $11 1/2 billion, reflecting increases in both real gross product and profits per unit. The increase in unit profits reflected a larger increase in unit prices than in unit costs. Profits of domestic financial corporations increased $2 1/2 billion. Profits from the rest of the world declined $4 billion.

Cash flow from current production, a measure of internally generated funds, increased $7 billion after declining $3 billion.

Profits by industry. -- Profits from current production is not available by industry; profits before tax (PBT) with inventory valuation adjustment (IVA) is the best available measure of industry profits. This measure increased $13 1/2 billion after increasing $10 billion.

For domestic nonfinancial corporations, PBT with IVA increased $15 billion after increasing $5 billion. Manufacturing accounted for two-thirds of the second-quarter increase. Food and petroleum manufacturing posted sizable increases, and losses in motor vehicle manufacturing declined substantially. Retail trade profits accounted for most of the rest of the increase in profits of domestic nonfinancial corporations; within retail trade, the increase was concentrated in food stores.

For domestic financial corporations, PBT with IVA increased $2 billion after increasing $9 billion. In both quarters, the increases reflected improving conditions in the savings and loan industry.

Profits from the rest of the world declined $4 billion, the same as in the first quarter. This component of profits measures inflows of profits from foreign affiliates of U.S. corporations less outflows of profits from U.S. affiliates of foreign corporations. Inflows declined $1 1/2 billion, and outflows increased $2 1/2 billion. Most of the drop in inflows and all of the increase in outflows was accounted for by nonpetroleum affiliates.

PBT and related measures. - PBT increased $2 1/2 billion, but profits after tax declined $1 billion. A decline in profits from the rest of the world, such as occured in the second quarter, lowers PBT and profits after tax by equal amounts.(2) For domestic corporations, PBT increased $6 1/2 billion, and profits after tax increased $3 billion.

The difference between the $10 billion increase in profits from current production and the $2 1/2 billion increase in PBT reflected an increase in the IVA that was only partly offset by a decline in the capital consumption adjustment. (Both adjustments are added to PBT to obtain the current-production measure.)

The IVA is an estimate of inventory profits with sign reversed. Inventory profits declined $11 billion, reflecting second-quarter declines in the prices of some inventoried goods, especially food and petroleum. The capital consumption adjustment, which declined $3 1/2 billion, is the difference between the billion, is the difference between the predominantly tax-based depreciation measure that underlies PBT, on the one hand, and BEA's approximation of economic depreciation, on the other.

Note. - Daniel Larkins prepared the section on corporate profits.

(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. (Dollar figures shown in the text are rounded to the nearest $1/2 billion.) Real, or constantdollar, estimates are expressed in 1982 dollars and are based on 1982 weights. (2.) For the rest of the world, PBT and profits after tax are identical and are derived from after-tax estimates in the balance of payments accounts.
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Title Annotation:second quarter of 1990
Publication:Survey of Current Business
Date:Sep 1, 1990
Previous Article:U.S. direct investment abroad: detail for position and balance of payments flows, 1989.
Next Article:Federal personal income tax liabilities and payments: revised and updated estimates, 1987-88.

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