The business situation.

Larkins, Daniel ; Moran, Larry R. ; Morris, Ralph W. 等

Real gross domestic product (GDP) increased 2.7 percent in the first quarter of 1995, according to the "preliminary" estimates of the national income and product accounts (NIPA's).(1) The "advance" estimates of the NIPA's, reported in the April "Business Situation," showed a 2.8-percent increase.

Although the revision to GDP growth was small, the revisions to some components of GDP were noteworthy. For example, the preliminary estimate of final sales of domestic product shows a 2.5-percent increase, considerably more than the advance estimate of a 1.8-percent increase. The preliminary estimate of inventory investment shows a substantially smaller increase than the advance estimate.

Real gross domestic purchases was revised little; according to the preliminary estimate, it increased 3.6 percent, only 0.1 percentage point less than reported a month ago. The fixed-weighted price index for gross domestic purchases increased 3.0 percent, 0.2 percentage point more than reported a month ago. (The sources of the revisions are discussed in the section "Revisions.")

The 2.7-percent increase in real GDP in the first quarter was markedly lower than the increases in the past few quarters (chart 1). The slowdown from the fourth quarter to the first was mostly accounted for by goods; motor vehicle output turned down, and the output of other goods increased less than in the fourth quarter (table 1). Output of services and of structures also slowed.

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The 3.6-percent increase in real gross domestic purchases followed an increase of 4.2 percent (table 2). The first-quarter increase reflected increases in nonresidential fixed investment and personal consumption expenditures. Inventory investment was up only a little, while residential investment and government purchases decreased.

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Imports and exports account for the difference between GDP (the goods and services produced in the United States) and gross domestic purchases (the goods and services purchased by U.S. residents). In the first quarter, gross domestic purchases increased more than GDP, as imports increased more than exports.

Personal consumption expenditures

Real personal consumption expenditures (PCE) increased 1.8 percent in the first quarter after increasing 5.1 percent in the fourth (table 3). Expenditures on durable goods, which turned down, contributed the most to the slowdown. Expenditures on nondurable goods increased somewhat less than in the fourth quarter, and expenditures on services somewhat more.

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The below-average growth in consumer spending is not easily explained by the factors usually associated with PCE (chart 2). Real disposable personal income posted a strong increase, 4.5 percent, though not as strong as the 7.5-percent increase in the fourth quarter. The unemployment rate edged down to 5.5 percent from 5.6 percent. The Index of Consumer Sentiment (prepared by the University of Michigan's Survey Research Center) increased for the second consecutive quarter after declining in the two preceding quarters.

Expenditures for durable goods decreased 4.0 percent - the first decrease in more than 3 years - after jumping 20.4 percent. The downturn was mainly accounted for by motor vehicles and parts and by furniture and household equipment. Motor vehicles and parts fell 16.3 percent after jumping 21.1 percent, reflecting a sharp drop in expenditures for new autos and trucks; net purchases of used autos and expenditures for tires, accessories, and parts increased in the first quarter. Furniture and household equipment slowed to a 2.7-percent increase from a 22.9-percent increase.

Expenditures for nondurable goods increased 2.6 percent after increasing 3.1 percent. Clothing and shoes, which increased 0.9 percent after increasing 12.3 percent, accounted for the slowdown. Food increased 2.0 percent, about the same as in the fourth quarter. Energy and "other" nondurable goods increased after decreasing.

Expenditures for services increased 3.1 percent after increasing 2.3 percent. The step-up was accounted for by energy and "other" services. Energy increased 9.2 percent after decreasing 10.7 percent, primarily reflecting a sharp pickup in expenditures for electricity and gas that resulted from the return to more normal temperatures after warmer-than-normal temperatures in the fourth quarter. "Other" services increased 4.0 percent after increasing 2.0 percent, mainly reflecting an upturn in net foreign travel expenditures and a step-up in expenditures for brokerage and investment counseling. Housing increased 1.9 percent, the same as in the fourth quarter. Transportation, medical care, and "other" household operations increased less than in the fourth quarter; in transportation, the slowdown reflected a smaller increase in air travel.

Nonresidential fixed investment

Real nonresidential fixed investment increased 20.7 percent in the first quarter after increasing 17.6 percent in the fourth (table 4). Both structures and producers' durable equipment stepped up.

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Factors that affect investment spending were generally favorable in the first quarter, except for real final sales of domestic product, which increased less than half as much as in the fourth quarter. Profits posted a fourth consecutive quarterly increase, and cash flow increased for the fourth time in five quarters. The capacity utilization rate in manufacturing continued its uptrend, increasing 0.4 percentage point to 84.9 percent. Borrowing costs - as measured by the yield on new high-grade corporate bonds - were unchanged after four consecutive quarterly increases.

Structures increased 14.3 percent after increasing 11.0 percent. Nonresidential buildings increased; both industrial and commercial buildings were up about as much as in the fourth quarter. Mining exploration, shafts, and wells - mainly oilwell drilling - increased after a decrease. Construction by utilities changed little after increasing.

Producers' durable equipment increased 22.5 percent after increasing 19.6 percent. The first-quarter increase was spread across all major categories of equipment. In information processing equipment, computers increased sharply, though not so sharply as in the fourth quarter. Most of the increase in transportation equipment was accounted for by aircraft; an increase in trucks and a decrease in autos were largely offsetting. In industrial equipment, the biggest increase was registered by special industry machinery.

Residential investment

Real residential investment decreased 2.6 percent in the first quarter after increasing 2.3 percent in the fourth. The downturn was accounted for by "other" residential investment, which decreased after increasing. Multifamily structures increased strongly again, and single-family structures decreased slightly less in the first quarter than in the fourth.

Single-family construction decreased 8.3 percent after decreasing 8.7 percent. Single-family construction in a quarter is largely determined by single-family housing starts in that quarter and in the preceding quarter. Therefore, construction in the first quarter of 1995 reflected starts in that quarter and in the fourth quarter of 1994. In these two quarters, single-family starts averaged 1.11 million units (seasonally adjusted annual rate), down from an average of 1.21 million units in the third and fourth quarters of 1994 (chart 3).

Multifamily construction increased 44.4 percent after increasing 55-0 percent. The first-quarter increase was the fifth in succession; since the fourth quarter of 1993, multifamily construction has increased at a compound annual rate of 46.2 percent. This growth over the past five quarters occurred despite a rental vacancy rate that hovered in the relatively high (and narrow) range of 7.2 percent to 7.5 percent.

"Other" residential investment decreased 1.2 percent after increasing 11.5 percent. The decrease was more than accounted for by brokers' commissions, which dropped as a result of a reduction in house sales. Sales of new and existing residences decreased 210,000 units (seasonally adjusted annual rate). The sales decrease occurred despite a decrease - the first in five quarters - in the mortgage commitment rate; the rate on 30-year fixed-rate loans decreased 29 basis points to 8.81 percent (chart 4).

Inventory investment

Real inventory investment - that is, the change in business inventories - increased $2.9 billion in the first quarter, as inventory accumulation increased to $52.3 billion from $49.4 billion (table 5). In contrast, inventory investment decreased $7.7 billion in the fourth quarter.

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Nonfarm inventories increased $49.8 billion in the first quarter, the fourth consecutive quarter of substantial accumulation. Most of the accumulation in the first quarter was by establishments that primarily sell durable goods. In manufacturing, the accumulation was accounted for by the electronic and industrial equipment industry. In retail trade, most of the accumulation was by auto dealers. In wholesale trade, the accumulation was more widespread; the largest accumulations were by wholesalers dealing in motor vehicles and parts, in electrical goods, and in machinery, equipment, and supplies.

Farm inventories increased $2.5 billion after increasing $7.7 billion. Inventories of crops increased less than in the fourth quarter, and inventories of livestock decreased slightly after an increase.

The constant-dollar ratio of nonfarm inventories to all final sales of domestic businesses moved up to 2.49 in the first quarter from 2.47 in the fourth. A ratio in which final sales are limited to goods and structures shows much the same picture; it moved up to 4.24 from 4.23. Despite these increases, both ratios remained low by historical standards.

Exports and imports of goods and services

Real exports increased 2.5 percent in the first quarter after increasing 20.2 percent in the fourth. Real imports increased 8.8 percent after increasing 11.4 percent (table 6).

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Exports of goods increased 4.3 percent after increasing 24.6 percent. After very strong fourth-quarter increases, exports of agricultural products turned down, and exports of nonagricultural products slowed sharply. Two-thirds of the slowdown in nonagricultural exports was accounted for by exports of nonautomotive capital goods; exports of civilian aircraft turned down, and exports of computers increased much less than in the fourth quarter. Most of the rest of the slowdown in nonagricultural exports was accounted for by nonautomotive consumer goods, which decreased after an increase. Exports of services turned down.

Imports of goods increased 8.0 percent after increasing 13.2 percent. The slowdown was more than accounted for by imports of nonautomotive capital goods, mainly computers. In contrast, auto imports increased more than in the fourth quarter, and imports of petroleum and petroleum products decreased only a little after a very large decrease. Imports of services increased sharply after little change.

Government purchases

Real government purchases decreased 1.2 percent in the first quarter after decreasing 4.1 percent in the fourth (table 7). Federal Government purchases decreased much less than in the fourth quarter, and State and local government purchases slowed.

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Federal defense purchases decreased 7.3 percent after decreasing 21.8 percent. The smaller first-quarter decrease mainly reflected an upturn in purchases of military equipment. First-quarter decreases in the purchases of nondurable goods and of services were comparable to the decreases in the fourth quarter. Within services, compensation of employees decreased for the 16th consecutive quarter. (Compensation primarily reflects the number of military and civilian personnel in the Department of Defense.)

Federal nondefense purchases increased 1.8 percent after increasing 2.9 percent. The slowdown was more than accounted for by purchases of structures, which decreased after a sharp increase.

State and local government purchases increased 0.5 percent after increasing 2.3 percent. The slowdown was more than accounted for by structures, which decreased after three consecutive increases; most types of structures contributed to the decrease, but a decrease in highway construction was especially large.

Revisions

The preliminary estimate of a 2.7-percent increase in real GDP in the first quarter is 0.1 percentage point lower than the advance estimate (table 8). Preliminary estimates of the increases in the fixed-weighted price indexes for gross domestic purchases (3.0 percent) and for GDP (3.3 percent) are 0.2 percentage point higher than the advance estimates.

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The small downward revision to real GDP was mainly the result of a downward revision to inventory investment that was largely offset by upward revisions to PCE and to residential and nonresidential fixed investment. The revision to inventory investment reflected the incorporation of the following revised or newly available source data:

* Newly available data on end-of-quarter inventory prices (producer price indexes for April) from the Bureau of Labor Statistics; * Revised data for February and newly available data for March on the book value of inventories in manufacturing and trade from the Census Bureau; * Revised seasonal factors for December 1994 from the Census Bureau; and * Newly available data on livestock inventories from the Department of Agriculture.

The upward revision to personal consumption expenditures reflected the incorporation of revised data on retail sales for February and March. The upward revision to residential fixed investment reflected the incorporation of revised (February) and newly available (March) data on the value of new construction put in place from the Census Bureau. The upward revision to nonresidential fixed investment was concentrated in producers' durable equipment and reflected the incorporation of Census Bureau data for March on manufacturers' shipments of capital goods (revised) and on imports and exports of capital goods (newly available).

Net exports - a component of GDP that sometimes undergoes substantial revision - was revised little this month, as exports and imports were revised up by nearly equal amounts. For both exports and imports, the revisions mainly reflected the incorporation of newly available Census Bureau data for March on trade in goods.

Alternative measures

The chain-type annual-weighted alternative measure of real GDP increased 1.7 percent in the first quarter, 1.0 percentage point less than the featured fixed-1987-weighted measure; the benchmark-years-weighted alternative measure increased 1.9 percent (table 9). About 75 percent of the difference between the increases in the alternative measures and the increase in the fixed-weighted measure was accounted for by a strong increase in purchases of computers, a product whose prices have decreased steadily since 1987. The alternative measures had also increased about 1 percentage point less than the fixed-weighted measure in the fourth quarter; about 60 percent of the difference was due to an increase in purchases of computers.

 Table 9. - Fixed-Weighted and Alternative Quantity and
 Price Indexes
 [Percent change at annual rates; based on seasonally adjusted
 index numbers (1987=100)]

 1994 1995
 II III IV I

Gross domestic product:
 Quantity indexes:
 Fixed 1987 weights 4.1 4.0 5.1 2.7
 Chain-type annual weights 4.2 3.6 4.0 1.7
 Benchmark-years weights 4.1 3.6 4.1 1.9
 Price indexes:
 Fixed 1987 weights 2.9 3.0 2.6 3.3
 Chain-type annual weights 2.7 2.8 2.5 3.3
 Benchmark-years weights 2.7 2.7 2.6 3.3

Gross domestic purchases:
 Price indexes:
 Fixed 1987 weights 3.2 3.5 2.6 3.0
 Chain-type annual weights 3.1 3.2 2.4 2.9
 Benchmark-years weights 3.1 3.2 2.5 2.9

 Note. - Percent changes are found in NIPA table 8.1. Index number
levels are found in tables
7.1 and 7.2.

Both of the alternative price indexes for gross domestic purchases increased 2.9 percent in the first quarter, slightly less than the increase in the featured fixed-weighted measure. In the fourth quarter, the alternative measures had also increased slightly less than the fixed-weighted measure.

The preliminary estimate of the increase in the chain-type measure of real GDP is 0.4 percentage point less than the advance estimate published last month; the preliminary estimate of the increase in the benchmark-years measure is 0.3 percentage point less. For prices of gross domestic purchases, the chain-type measure was revised up 0.2 percentage point, and the benchmark-years measure was revised up 0.1 percentage point.

Corporate Profits

Profits from current production increased $8.5 billion in the first quarter of 1995 after increasing $4.3 billion in the fourth quarter of 1994 (table 10).(2)

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The first-quarter increase was accounted for by domestic operations of financial corporations and by profits from the rest of the world. Profits from domestic operations of nonfinancial corporations, in contrast, decreased; real product of these corporations increased, but profits per unit dipped as unit costs rose more than unit prices.

Cash flow from current production, a profits-related measure of internally generated funds available for investment, increased $8.1 billion after decreasing $3.3 billion. The ratio of cash flow to nonresidential fixed investment is an indicator of the share of current level of investment that could be financed by internally generated funds. In the first quarter, this ratio decreased to 75.2 percent; the decrease was the sixth in succession and reflected the continued strong growth of investment.

Related measures. - Industry profits increased $9.4 billion after increasing $2.9 billion.(3) Profits of financial industries increased $7.0 billion after decreasing $5.4 billion; the increase appears to have been spread across commercial banks, Federal Reserve banks, and property/casualty insurance carriers.(4) Profits of nonfinancial industries decreased $5-1 billion after increasing $9.0 billion; decreases appear to have been widespread in manufacturing and were evident also in trade and in the transportation and public utilities group. In contrast, profits of "other" nonfinancial corporations, such as construction and services, increased. Profits from the rest of the world increased $7.5 billion after decreasing $0.6 billion. This component of profits measures receipts of profits from foreign affiliates of U.S. corporations less payments of profits by U.S. affiliates of foreign corporations. Receipts increased much more than payments in the first quarter.

Profits before tax increased $16.0 billion, almost twice as much as profits from current production. The difference between the two measures mainly reflects an increase in inventory profits, which are included in profits before tax and which are recorded (with the sign reversed) in the Nipa's as the inventory valuation adjustment.

Government Sector

The fiscal position of the government sector improved in the first quarter of 1995, as the combined deficit of the Federal Government and of State and local governments decreased $11.7 billion, to $120.6 billion (table 11). This turnaround was largely the result of an improvement in the Federal Government deficit.

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Federal

The Federal Government deficit fell $10.8 billion, to $150.3 billion, in the first quarter after increasing $7.1 billion in the fourth quarter and $8.9 billion in the third. The improvement reflected both an acceleration in receipts and a deceleration in expenditures. Receipts. - Receipts increased $28.3 billion in the first quarter after increasing $20.0 billion in the fourth. The acceleration was more than accounted for by personal tax and nontax receipt and by contributions for social insurance.

Personal tax and nontax receipts $16.4 billion after increasing $7.3 billion. Net nonwithheld personal income taxes increased $10.3 billion after decreasing $0.5 billion. This upturn was largely a result of provisions of the Omnibus Budget Reconciliation Act Of 1993 that deferred some 1994 liabilities until 1995. These changes included the addition of a fourth tax bracket and a 10-percent surtax on high incomes. Withheld personal income taxes increased $6.3 billion after increasing $8.3 billion, as a result of a slowdown in wages and salaries and the effects of annual indexation for inflation on the 1995 withholding tables.

Contributions for social insurance increased $10.7 billion after increasing $7.0 billion. The step-up reflected an increase in the social security taxable wage base and an increase in monthly premiums for supplemental medical insurance, both of which were effective in January 1995.

Indirect business tax and nontax accruals decreased $2.8 billion after no change. The downturn reflected a decline in collections of customs duties as a result of reduced tariffs under the General Agreement on Trade and Tariffs and the North American Free Trade Agreement.

Corporate profits tax accruals increased $4.0 billion after increasing $5.7 billion. The slowdown reflected a deceleration in domestic corporate profits.

Expenditures. - Expenditures increased $17.5 billion in the first quarter after increasing $27.1 in the fourth. Slowdowns in transfer payments and in net interest paid and a downturn in subsidies less current surplus of government enterprises were partly offset by a turnaround in purchases.

Transfer payments increased $6.5 billion after increasing $16.2 billion. A downturn in transfer payments to the rest of the world was partly offset by an acceleration in transfer payments to persons. Transfer payments to the rest of the world decreased $14.2 billion after increasing $10.3 billion; the increase in the fourth quarter was accounted for primarily by a $12.0 billion (annual rate) payment to Israel to finance military purchases. Transfer payments to persons increased $20.7 billion after increasing $600 billion. Most of this step-up was accounted for by social security benefits (old-age, survivors, and disability insurance). These benefits increased $9.8 billion after increasing $2.1 billion, reflecting a 2.8-percent cost-of-living adjustment that went into effect in January. In addition, transfer payments to persons were boosted $5.1 billion in the first quarter by an expansion of eligibility and higher benefits for the earned income tax credit, which became effective in January.

Subsidies less current surplus of government enterprises decreased $2.7 billion after increasing $8.9 billion. The downturn was attributable to both a slowdown in subsidies, which reflected a downturn in agricultural subsidies, and an upturn in the current surplus of government enterprises, which mainly reflected an increase in postal rates in January.

Net interest paid increased $6.5 billion after increasing $9.1 billion. The deceleration was mainly attributable to gross interest paid, which increased $5.8 billion after increasing $9.8 billion.

Purchases increased $1.7 billion after decreasing 12.4 billion. This turnaround was largely attributable to defense spending, which decreased much less in the first quarter than in the fourth. Defense purchases decreased $1-5 billion after decreasing $15.2 billion, as purchases of durable goods and structures turned up and as services declined less than in the fourth quarter. Most of the upswing in purchases of durable goods was attributable to military equipment, which rose $2.6 billion after decreasing $8.1 billion; purchases of "other" military equipment, aircraft, and ships all increased after decreasing in the fourth quarter. Purchases of defense services decreased $5.0 billion after decreasing $6.8 billion; compensation of employees turned up as a result of a pay raise for Federal military and civilian employees, which went into effect in January.

Nondefense purchases increased $3.2 billion after increasing $2.8 billion. Step-ups in purchases of services, durable goods, and nondurable goods were largely offset by a downturn in the purchases of structures. Purchases of nondefense services increased $1.9 billion after an increase of $0.7 billion. This acceleration was due to an increase in compensation that resulted from the pay raise for Federal employees. Purchases of durable goods increased $0.6 billion after increasing S0.1 billion, largely because of a slowdown in timber sales (sales except those by government enterprises for goods and services similar to those provided by the private sector are treated as deductions from government purchases). Purchases of nondurable goods increased $0.9 billion after increasing $0.6 billion; reduced sales by the Commodity Credit Corporation accounted for the step-up. Purchases of structures decreased $0.2 billion after increasing $1.4 billion.

Grants-in-aid to State and local governments increased $5.5 billion after increasing $5.2 billion.

State and local

The State and local government surplus increased $0.9 billion, to $29.7 billion, in the first quarter after increasing $4.9 billion in the fourth. In both quarters, receipts increased more than expenditures.

Receipts increased $14.0 billion in the first quarter after increasing $17.4 billion in the fourth. This slowdown was accounted for by indirect business tax and nontax accruals, This slowdown was accounted for by indirect business tax and nontax accruals, personal tax and nontax receipts, and corporate profits tax accruals, Indirect business tax and nontax accruals increased $4.8 billion after a $6.7 billion increase, as sales taxes increased $1.7 billion after an increase of $4.1 billion. Personal tax and nontax receipts increased $2.2 billion after an increase of $3.3 billion; the deceleration was in income tax receipts. Corporate profits tax accruals increased $0.5 billion after an increase of $1.3 billion; the slowdown reflected a deceleration in domestic corporate profits.

Expenditures increased $13.1 billion in the first quarter after increasing $12.5 billion in the fourth. Net interest paid was unchanged after a $0.5 billion decrease. Purchases increased $9.5 billion after increasing $9.3 billion. Within purchases, structures decreased $0.8 billion after a $2.6 billion increase; all the other components of purchases accelerated.

(1.) Quarterly estimates in the NIPA's are expressed at seasonally adjusted annual rates, and quarterly changes are differences between these rates. Quarter-to-quarter percent changes are annualized. Real, or constant-dollar, estimates are expressed in 1987 dollars and are based on 1987 weights. Estimates based on weights of more recent periods are shown in the section "Alternative measures." (2.) Profits from current production is estimated as the sum of profits before tax, the inventory valuation adjustment (IVA), and the capital consumption adjustment (CCAdj); it is shown in NIPA tables 1.14, 1.16, and 6.16c as "corporate profits with IVA and CCAdj." (3.) Industry profits are estimated as the sum of profits before tax and the inventory valuation adjustment (IVA); it is shown in NIPA table 6.16C as "corporate profits with iva." Estimates of the capital consumption adjustment by industry do not exist. (4.) The income of Federal Reserve banks is treated as corporate profits in the NIPA's.