The business situation.

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

U.S. PRODUCTION and U.S. demand both increased moderately in the first quarter of 1992 (chart 1 and table 1). Real gross domestic product (GDP), a measure of goods and services produced in the United States, increased 2.4 percent; real gross domestic purchases, a measure of goods and services purchased by U.S. residents, increased 2.5 percent.(1) As explained in the "Revisions" section of this article, these "preliminary" estimates (as well as the "preliminary" estimates of the price indexes for GDP and gross domestic purchases) are somewhat higher than the "advance" estimates issued a month ago.

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The first-quarter increase in real GDP was larger than the increases registered in the three preceding quarters. All of these increases were smaller than the increases that are typical of a business cycle recovery. The level of real GDP in the first quarter was slightly below its level at the peak of the business cycle in the third quarter of 1990; in other business cycles since 1960, real GDP had surpassed its previous peak within three quarters of the cyclical trough.

Both real gross domestic purchases and real final sales to domestic purchasers increased in the first quarter after decreasing in the fourth. Final sales to domestic purchasers was particularly strong, increasing more in the first quarter than in the preceding three quarters combined. The first-quarter increase was almost twice as big as the increase in gross domestic purchases; the difference reflected a sharp downswing in inventory investment. Each of the major components of final sales contributed to the first-quarter increase, with personal consumption expenditures accounting for more than three-fourths of it.

Personal consumption expenditures

Real personal consumption expenditures (PCE) increased 5.4 percent in the first quarter, the largest increase in more than 5 years, after no change in the fourth quarter and an increase of 2.3 percent in the third (table 2). As a result of the first-quarter increase, the level of PCE was 1.0 percent above its level at the peak of the business cycle. The large increase reflected a jump in expenditures for durable goods, a sizable increase in expenditures for nondurable goods, and a modest increase in expenditures for services.

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Real disposable personal income increased 3.7 percent in the first quarter, the largest increase in 2 years, after small increases in the third and fourth quarters. However, other factors that underlie consumer spending remained weak. The unemployment rate rose to 7.2 percent in the first quarter, and the Index of Consumer Sentiment (prepared by the University of Michigan's Survey Research Center) slid further, although it did turn up late in the quarter.

Expenditures for durable goods jumped 18.4 percent in the first quarter after dropping 5.7 percent in the fourth. First-quarter increases were widespread, with the largest being in new foreign cars, used cars, consumer electronics, and kitchen and other household appliances.

Expenditures for nondurable goods increased 5.4 percent in the first quarter after decreasing 3.9 percent in the fourth. Again, increases were widespread; the only major component that decreased was energy, reflecting a decrease in gasoline and oil.

Expenditures for services increased 2.5 percent in the first quarter after increasing 3.7 percent in the fourth. "Other" services accounted for the first-quarter increase; within "other services," the largest increase was in brokerage commissions.

Nonresidential fixed investment

Real nonresidential fixed investment increased 1.7 percent in the first quarter after decreasing for five consecutive quarters (table 3). Its first-quarter level was 8.6 percent below its level at the business cycle peak.

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The factors that are associated with investment spending have been mixed in recent quarters. Capacity utilization rates have been falling but are higher than usual for this stage of the business cycle. Real final sales to domestic purchasers and corporate profits increased modestly until the first quarter, when they increased sharply. The yield on new high-grade corporate bonds has been decreasing for more than a year. The latest Census Bureau survey of plans for plant and equipment expenditures, released in early June, reported that real spending in 1992 is expected to be 6.0 percent higher than in 1991.

Structures decreased 3.0 percent in the first quarter after decreasing 7.8 percent in the fourth. The first-quarter decrease is the sixth consecutive decrease, but it is considerably smaller than the preceding ones. A decrease in nonresidential buildings was more than accounted for by a decrease in commercial buildings; industrial buildings increased. The decrease in commercial buildings, in turn, was another in a long series of decreases that have left commercial buildings at its lowest level in 13 years. Mining exploration, shafts, and wells--mostly oil wells--posted another decrease; utilities and "other" structures swung up.

Producers' durable equipment increased 3.7 percent in the first quarter after decreasing 1.6 percent in the fourth quarter. Information processing and related equipment increased (for the fourth consecutive quarter) and other' equipment swung up, but industrial and transportation equipment decreased.

Residential investment

Real residential investment increased 8.4 percent in the first quarter after increasing 12.3 percent in the fourth quarter and 10.9 percent in the third. Despite these increases, residential investment in the first quarter was still 2.9 percent below its level at the peak of the business cycle. The first-quarter increase reflected increases in single-family construction and in the "other" component of residential investment; multifamily construction decreased for the 11th consecutive quarter.(2)

Single family . construction has increased strongly during the past three quarters. The increases reflected a turnaround in single-family housing starts; starts increased 325,000, to 1.06 million (seasonally adjusted annual rate), during the last four quarters after decreasing 350,000 during the four preceding quarters (chart 2).

The first-quarter increase in the "other" component was largely attributable to brokers' commissions on house sales. Sales of new houses increased 4.6 percent, and sales of existing homes increased 2.9 percent. These increases partly reflected low mortgage rates; the rate in the first quarter was only marginally higher than that in the fourth quarter, which was the lowest rate in 15 years (chart 3).

Multifamily construction decreased much more in the first quarter than in the fourth and is at its lowest level in more than 30 years.

Inventory investment

Real inventory investment--that is, the change in business inventories--fell $26.0 billion in the first quarter, as business inventories decreased $18.4 billion after increasing $7.6 billion in the fourth quarter (table 4). Inventory investment had increased $7.5 billion in the fourth quarter.

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The first-quarter downswing in inventory investment was accounted for by nonfarm inventories, which decreased $18.1 billion in the first quarter after increasing $9.2 billion in the fourth. During the four preceding quarters, nonfarm inventories had decreased an average of $22.6 billion.

Manufacturing inventories decreased $9.6 billion in the first quarter, the fourth consecutive quarter of inventory reduction. Inventories of durables decreased substantially, continuing a series of decreases; in particular, inventories of primary metals, nonelectrical machinery, and transportation equipment other than motor vehicles have decreased sharply over the past several quarters. Inventories of nondurables increased slightly more in the first quarter than in the fourth.

Retail trade inventories decreased $13.3 billion in the first quarter after increasing in the two preceding quarters. Inventories of retailers of both durable and nondurable goods decreased in the first quarter after increasing in the fourth. Within durables, inventories held by retail auto dealers continued to be drawn down.

Wholesale trade inventories increased $3.6 billion in the first quarter after increasing $14.7 billion in the fourth. Inventories of merchant wholesalers of durable goods decreased in the first quarter after a sharp increase in the fourth. Inventories of merchant wholesalers of nondurable goods were up by about the same amount as in the fourth quarter. Inventories of nonmerchant wholesalers decreased less in the first quarter than in the fourth.

Farm inventories decreased $0.3 billion in the first quarter after decreasing $1.6 billion in the fourth. Inventories of crops decreased in both quarters; the first-quarter decrease reflected pick-ups in open-market sales and in defaults on Commodity Credit Corporation loans.(3) Inventories of livestock increased after a slight decrease; the upswing reflected weak open-market sales.

Reflecting the first-quarter reduction in inventories and the pickup in final sales of domestic businesses, the ratio of nonfarm business inventories to final sales fell to 2.53; in the preceding 2 years, it fluctuated in the narrow range of 2.56 to 2.61.

Net exports

Real net exports decreased slightly in the first quarter after increasing in the fourth quarter and decreasing in the third (table 5). Its first-quarter level was $43.4 billion above its level at the peak of the business cycle. The first-quarter decrease reflected a 0.9-percent decrease in exports that was partly offset by a 0.2-percent decrease in imports.

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Merchandise exports decreased 0.3 percent in the first quarter after increasing 14.1 percent in the fourth. Agricultural exports increased much less in the first quarter than in the two preceding quarters. Nonagricultural exports decreased 0.8 percent after increasing 12.9 percent; about one-half of the downswing was due to exports of capital goods except autos. Exports of services decreased 2.7 percent, about twice as much as in the fourth quarter.

Merchandise imports increased 0.5 percent in the first quarter after increasing 0.8 percent in the fourth. Imports of petroleum products swung from a sharp decrease to a slight increase. Imports of nonpetroleum products increased less than in the fourth quarter; the slowdown was more than accounted for by imports of consumer goods except autos. Imports of services decreased 3.8 percent after increasing 9.0 percent.

Government purchases

Real government purchases increased 3.1 percent in the first quarter after decreasing in the three preceding quarters (table 6). Its first-quarter level was 0.3 percent above its level at the peak of the business cycle. Federal Government purchases increased in the first quarter after decreasing in the preceding two quarters. State and local government purchases increased considerably more in the first quarter than in the fourth.

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Federal defense purchases decreased 2.4 percent in the first quarter after decreasing 15.7 percent in the fourth. The first-quarter decrease was accounted for by purchases of military hardware, largely aircraft and missiles, and by purchases of nondurable goods, particularly ammunition.

Federal nondefense purchases increased 13.2 percent in the first quarter after decreasing 7.8 percent in the fourth. Both CCC inventory change and "other" Federal nondefense purchases contributed to the upswing. The level of CCC inventories decreased $0.2 billion after decreasing $2.0 billion in the fourth quarter and $0.1 billion in the third. "Other" nondefense purchases increased 5.5 percent in the first quarter after decreasing 0.8 percent in the fourth; all categories except structures contributed to the first-quarter increase.

State and local government purchases increased 3.9 percent after increasing 0.8 percent. The pickup was traceable to purchases of structures, which registered its largest increase in 2 years; most types of structures contributed to the increase, but the increase in highway construction was especially large.

Revisions

The preliminary estimate of real GDP growth in the first quarter, 2.4 percent, is 0.4 percentage point higher than last month's advance estimate, which was based on less complete information (table 7). Real inventory investment was revised up $7.7 billion, more than accounting for the revision in real GDP. The inventory revision primarily reflected the incorporation of newly available data for March on inventories of manufacturers, merchant wholesalers, and nonauto retailers. Nonresidential fixed investment was revised up $4.0 billion, and residential investment was revised down $3.1 billion. Net exports was revised down $0.8 billion on the basis of newly available data on merchandise trade for March; exports were revised down $2.7 billion and imports were revised up $1.9 billion.

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For real gross domestic purchases, the preliminary estimate of a 2.5-percent increase is 0.8 percentage point higher than the advance estimate. The upward revision in gross domestic purchases was larger than that in GDP because gross domestic purchases does not include net exports.

The increase in the fixed-weighted price index for gross domestic purchases was revised up 0.4 percentage point, and the increase in the fixed-weighted price index for GDP was revised up 0.3 percentage point. These revisions, which are somewhat larger than usual, mainly reflect newly available data on prices of structures.

Corporate Profits

Preliminary estimates show that profits from current production--profits before tax plus inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj)--increased $31.4 billion in the first quarter of 1992 (table 8), the largest increase in almost 5 years. In the fourth quarter of 1991, profits had increased $9.5 billion. For nonfinancial corporations, profits from domestic operations increased $21.9 billion after increasing $8.9 billion; most of the first-quarter increase was attributable to a sharp jump in unit profits that resulted from higher unit prices and lower unit labor and nonlabor costs. For financial corporations, profits from domestic operations increased $6.7 billion after decreasing $1.4 billion. Profits from the rest of the world increased $2.9 billion after increasing $2.0 billion.

Cash flow from current production, a profits-related measure of internally generated funds available to corporations for investment, increased $21.2 billion after increasing $13.3 billion. The increase in cash flow lifted cash flow as a percentage of nonresidential fixed investment to 84.8 percent from 81.1 percent, despite an increase in first-quarter nonresidential fixed investment.

Profits by industry.--Profits before tax (PBT) With IVA is the best measure of industry profits because estimates of the CCAdj by industry are not available. According to this measure, profits arising from domestic operations increased $17.1 billion after increasing $1.5 billion. Both nonfinancial and financial corporations contributed to the first-quarter increase. Within nonfinancial, manufacturing and the transportation and public utilities group contributed about equally to the first-quarter increase; profits in trade were unchanged from the fourth quarter.

Profits from the rest of the world increased $2.9 billion. This component. of profits measures receipts of profits by U.S. corporations from their foreign affiliates less payments of profits to foreign corporations from their U.S. affiliates. In the first quarter, receipts increased $7.5 billion, and payments increased $4.6 billion.

Profits before tax and related measures.--PBT increased $23.7 billion in the first quarter after decreasing $2.1 billion in the fourth. The difference between the $31.4 billion increase in profits from current production and the $23.7 billion increase in PBT is attributable to changes in the iva and in the CCAdj. These adjustments convert the value of depreciation and inventory withdrawals reported by business to a basis consistent with the national income and product accounts. In the first quarter, the iva decreased $3.6 billion, and the CCAdj increased $11.5 billion.

Government Sector

The fiscal position of the government sector deteriorated in the first quarter of 1992, as the combined deficit of the Federal Government and of State and local governments increased $43.1 billion, to $246.0 billion (table 9). The Federal Government deficit increased $41.4 billion, and the State and local surplus decreased $1.7 billion.

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Federal

The Federal Government deficit increased to $284.5 billion, as expenditures increased considerably more than receipts.

Receipts increased $5.3 billion in the first quarter after increasing $1.6 billion in the fourth. The acceleration was attributable to an upturn in corporate profits tax accruals and to a pickup in contributions for social insurance.

Corporate profits tax accruals increased $6.4 billion after declining $1.8 billion; the upturn reflected the pattern of corporate profits. Contributions for social insurance increased $8.6 billion after increasing $1.7 billion; the first-quarter increase was boosted by the following four program changes that became effective January 1, 1992: Increases in maximum taxable wages for social security ($1.8 billion), increases in maximum taxable earnings for social security contributions by the self-employed ($1.1 billion), an increase in the monthly medicare insurance premiums from $29.90 to $31.80 ($0.8 billion), and an increase in the contribution for military retirement ($0.9 billion).

Personal tax and nontax receipts declined $8.0 billion after declining $0.9 billion; in the first quarter, a March revision to the income-tax-withholding tables reduced receipts by $8.3 billion. Indirect business tax and nontax payments declined $1.6 billion after increasing $2.5 billion; the turnaround was largely attributable to customs duties, which declined $1.8 billion after increasing $1.8 billion.

Expenditures increased $46.7 billion after increasing $34.5 billion. The acceleration was attributable to an upswing in purchases and to a pickup in transfer payments to persons.

Purchases increased $9.2 billion after decreasing $12.9 billion, reflecting upswings in both national defense and nondefense purchases. Defense purchases increased $3.2 billion after decreasing $11.3 billion. The first-quarter increase was more than accounted for by a $3.3 billion January pay raise for military and civilian employees; the large decline in the fourth quarter reflected a sharp winding down in most types of military purchases following the Desert Storm buildup. Nondefense purchases increased $6.0 billion after decreasing $1.7 billion. The turnaround was attributable to the following: The Commodity Credit Corporation inventory change, which increased $1.6 billion after declining $3.2 billion; purchases by the National Aeronautics and Space Administration, which increased $1.1 billion after declining $1.0 billion; and a January employee pay raise, which added $2.0 billion to the first-quarter increase.

Transfer payments to persons increased $33.8 billion after increasing $13.5 billion. The first-quarter increase was boosted by the following: $12.9 billion for cost-of-living increases in social security and other programs, $10.6 billion for benefits under the Emergency Unemployment Compensation program enacted in November 1991, $2.8 billion for an increase in earned income credit payments, and $1.3 billion for a speedup in veterans life insurance dividends. These increases were slightly offset by a $1.7 billion decline in payments to Japanese-Americans interned during World War II.

Transfer payments to foreigners increased $7.6 billion after increasing s8.2 billion. Both increases reflected continued declines--$3.8 billion in the fourth quarter and $12.8 billion in the first--in contributions from U.S. coalition partners for Operation Desert Storm expenses. These contributions, which in the NIPA's are treated as negative transfer payments to foreigners, have declined steadily since peaking in the first quarter of 1991. Other transfer payments to foreigners declined s5.2 billion in the first quarter.

Grants-in-aid to State and local governments increased $1.1 billion after increasing $10.1 billion; the deceleration was largely attributable to medicaid grants, which decreased $2.1 billion after increasing $6.8 billion. Net interest paid decreased $3.8 billion after increasing $3.5 billion, reflecting lower first-quarter interest rates. Subsidies less the current surplus of government enterprises declined $1.2 billion after an increase of $12.2 billion; the downswing was attributable primarily to agricultural subsidies.

State and local

The State and local government surplus decreased to $38.5 billion, as expenditures increased more than receipts.

Receipts increased $12.0 billion in the first quarter after increasing $18.4 billion in the fourth. The slowdown was attributable to Federal grants-in-aid, which increased $1.1 billion after increasing $10.1 billion, and to personal tax and nontax receipts, which increased $0.7 billion after increasing $4.2 billion. In the first quarter, personal tax and nontax receipts included some small reductions in income-tax-withholding schedules; in the fourth quarter, they included income tax increases in Connecticut and New York City. Indirect business tax and nontax accruals increased $7.5 billion after increasing $4.1 billion; sales taxes picked up, reflecting rapid growth in retail sales. Corporate profits tax accruals increased $2.1 billion after declining $0.4 billion; the upturn reflected the pattern of corporate profits. Contributions for social insurance increased $0.6 billion after increasing $0.3 billion.

Expenditures increased $13.7 billion after increasing $10.0 billion. Purchases increased $7.7 billion after increasing $3.3 billion; purchases of structures (particularly highways) accounted for most of the acceleration. All other expenditure categories combined increased $6.0 billion after increasing $6.7 billion.

Looking Ahead...

* National Income and Product Accounts Revision. Revised estimates for the 3-year period beginning with the first quarter of 1989 will be presented in the July Survey. Selected data will be available as of July 30.

* Foreign Direct Investment in the United States. The first results of joint projects that link BEA data for foreign-owned U.S. companies with detailed establishment data from the Census Bureau and the Bureau of Labor Statistics will be released by the three agencies on June 24. Detailed information from the BEA-Census Bureau link project will be published in Foreign Direct Investment in the United States. Establishment Data for 1987, which will be available shortly thereafter from the U.S., Government Printing Office; ordering information will appear in an upcoming issue of the Survey. (For additional information on the link project, see the box on page 46.) (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. Real, or constant-dollar, estimates are expressed in 1987 dollars and are based on 1987 weights. (2.) The "other" component includes additiones and alterations, major replacements, mobile home sales, and brokers' commissions on house sales. (3.) As explained on page 30 of the September 1991 Survey a default on a Commodity Credit Corporation loan is treated as a reduction in farm inventories and as an increase in Federal Government nondefense purchases.