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The business situation.


Corporate Profits

PROFITS from current production--profits before tax with inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj)--increased $4 billion, to $289 1/2 billion, in the first quarter of 1990 after declining $9 1/2 billion in the fourth quarter of 1989 (table 1).(1)

Profits of domestic financial corporations, up $7 1/2 billion, more than accounted for the first-quarter increase; profits from the rest of the world declined $3 1/2 billion, and profits of domestic nonfinancial corporations changed little. Real gross product of domestic nonfinancial corporations was flat, and profits per unit were unchanged as higher unit costs (mainly labor costs) offset higher unit prices.

Profits before tax and related measures.--Profits before tax (PBT) increased $9 1/2 billion after declining $1 1/2 billion. The difference between the $4 billion increase in profits from current production and the $9 1/2 billion increase in PBT reflected declines in the IVA and in the CCAdj. (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 increased $1 1/2 billion, reflecting a pickup in the rate of increase in prices of inventoried goods, especially farm products. The CCAdj, which declined $4 1/2 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.

Profits tax liability increased almost $8 billion; as a result, profits after tax (PAT) increased less than $2 billion. A decline in profits from the rest of the world, such as occurred in the first quarter, lowers PBT but does not affect profits tax liability.

For domestic corporations, PBT increased $13 billion and PAT increased $5 1/2 billion (table 1.16 of the "Selected NIPA Tables"). PAT consists of net dividend payments (that is, payments less receipts) and undistributed profits. In the first quarter, net dividend payments of domestic corporations increased, in large part because dividends paid by the rest of the world, most of which are received by domestic corporations, declined. Undistributed profits of domestic corporations--the difference between PAT and net dividend payments--declined.

Cash flow from current production, a profits-related measure of internally generated funds available to corporations for investment, declined $7 1/2 billion after declining $1 billion.

PBT with IVA but without CCAdj.--Profits from current production is not available by industry; PBT with IVA is the best available measure of industry profits.

This measure of the profits of domestic financial corporations increased $8 1/2 billion after declining $5 billion. Losses at savings and loan associations moderated. Profits of commercial banks increased after a fourth-quarter drop that reflected an unusually high level of loan writeoffs.

Profits of domestic nonfinancial corporations increased $3 1/2 billion after declining $9 1/2 billion. In manufacturing, the picture was mixed. For example, chemical and nonelectric machinery profits increased substantially, and profits in "other durables" jumped after the settlement of a fourth-quarter strike at a major aircraft manufacturer; in contrast, losses in motor vehicles worsened, and profits in food, petroleum, and "other nondurables" declined. In wholesale and retail trade, profits declined, partly reflecting the increased costs of inventories that were not fully passed through to prices; in retail trade, the decline was more than accounted for by general merchandise and food stores.

Profits from the rest of the world declined $3 1/2 billion after increasing $9 1/2 billion. 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. In the first quarter, inflows were unchanged, and outflows, mainly from chemical affiliates of European firms, increased. [Tabular Data Omitted]

(1)Quarterly estimates in the national income and product accounts are expressed at seasonally adjusted annual rates, and quarterly changes are differences between those rates.
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Title Annotation:the first quarter of 1990
Publication:Survey of Current Business
Date:Jun 1, 1990
Previous Article:BEA economic area projections of income, employment, and population to the year 2000.
Next Article:The United Nations System of National Accounts: an introduction.

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