Business situation: final estimates for the third quarter of 2004.

Moyer, Brian C. ; Smith, Shelly ; Sullivan, David F. 等

ACCORDING to the "final" estimates of the national income and product accounts (NIPAs), real GDP increased 4.0 percent in the third quarter of 2004 (chart 1 and table 1). (1) The "preliminary" estimates of GDP released in November showed a 3.9-percent increase for the quarter (for the details, see the December SURVEY Or CURRENT BUSINESS). The slight upward revision mainly reflected a revision to imports (table 2). (2)

* Real GDP increased 4.0 percent in the third quarter after increasing 3.3 percent in the second.

* Prices of goods and services purchased by U.S. residents increased 1.9 percent, 0.1 percentage point more than the preliminary estimate. In the second quarter, prices increased 3.5 percent.

* Real disposable personal income (DPI) increased 2.0 percent, the same as the preliminary estimate. In the second quarter, real DPI increased 2.8 percent.

The insurance transactions associated with the hurricanes that struck portions of the southern and eastern United States in August and September did not directly affect third-quarter GDP because of the treatment of insurance services in the NIPAs. (3) Estimates of other, indirect, effects of the hurricanes are not available, because these effects may occur with a lag and beacuse they generally cannot be disentangled from the regular source data that BEA uses to prepare the GDP estimates. However, some income measures were affected by the hurricanes, and estimates of those effects have been incorporated into the NIPA estimates for the third quarter (see the section on corporate profits).

The acceleration in third-quarter GDP growth reflected a step-up in consumer spending and a slowdown in imports.

* Consumer spending increased 5.1 percent after increasing 1.6 percent in the second quarter, and it contributed 3.57 percentage points to GDP growth in the third quarter. The acceleration was mainly accounted for by an upturn in purchases of durable goods, specifically purchases of motor vehicles.

* Imports increased 4.6 percent, substantially less than in the second quarter, and subtracted 0.69 percentage point from GDP growth. In the second quarter, imports had subtracted 1.77 percentage points from GDP growth. The deceleration was due primarily to a downturn in imports of nonautomotive consumer goods and a deceleration in imports of nonautomotive capital goods.

The contributions of these components to the acceleration in GDP growth were partly offset by a downturn in inventory investment and by a slowdown in residential investment.

* Investment in private inventories subtracted 0.97 percentage point from third-quarter GDP growth after adding 0.78 percentage point to second-quarter growth. The downturn was mainly accounted for by a swing from accumulation to liquidation of motor vehicle dealers' inventories.

* Residential fixed investment increased 1.6 percent after increasing 16.5 percent in the second quarter and contributed 0.09 percentage point to third-quarter GDP growth. The slowdown mainly reflected a downturn in brokers' commissions on home sales.

Government spending and exports slowed somewhat in the third quarter, and nonresidential fixed investment increased at about the same rate as in the second quarter.

* Government spending increased 0.7 percent and contributed 0.13 percentage point to third-quarter GDP growth, 0.28 percentage point less than it had contributed to second-quarter growth. The slowdown was more than accounted for by a downturn in state and local government spending; investment in structures turned down. Federal Government spending accelerated.

* Exports slowed, contributing 0.11 percentage point less to third-quarter GDP growth than to second-quarter growth.

Nonresidential fixed investment increased 13.0 percent and contributed 1.27 percentage points to GDP growth, slightly more than it had contributed in the second quarter. Investment in equipment and software accelerated, and investment in structures decreased slightly after increasing.

The final estimates for the third quarter also show the following:

* Real final sales of domestic product (GDP less the change in private inventories) increased 5.0 percent after increasing 2.5 percent.

* Real gross domestic purchases increased 3.9 percent after increasing 4.2 percent.

* Real gross national product (GNP) increased 4.0 percent after increasing 1.9 percent. (4) The increase in third-quarter GNP is the same as the increase in GDP; an increase in income receipts from the rest of the world was offset by an increase in income payments to the rest of the world.

* The gross saving rate--saving from all sources as a percentage of gross national income--was 13.6 percent. The net saving rate decreased to 0.9 percent from 2.1 percent in the second quarter. Net saving is a measure of the saving that is available for augmenting the stock of fixed assets; it equals gross saving less consumption of fixed capital (CFC). The decrease in the net saving rate reflected a large increase in CFC that resulted from the estimated damage to the stock of private fixed assets that was caused by the hurricanes in the third quarter.

Corporate Profits

Profits from current production decreased $55.9 billion (4.8 percent at a quarterly rate) in the third quarter after increasing $8.3 billion (0.7 percent) in the second quarter (table 3). (5) The decrease reflected a decrease in profits of domestic corporations that was partly offset by an increase in profits from the rest of the world. (6)

The third-quarter profits of domestic corporations were reduced $79.7 billion (annual rate) because of the effects of Hurricanes Charley, Frances, Ivan, and Jeanne. Specifically,

* Benefits paid by domestic insurance companies reduced their profits by $69.3 billion.

* The uninsured losses of corporations reduced corporate profits by an additional $10.4 billion. (7)

Overall, the total decrease in third-quarter profits of domestic industries reflected a decrease in the profits of financial corporations that was partly offset by an increase in the profits of nonfinancial corporations.

Profits of financial corporations decreased $68.7 billion (19.7 percent) in the third quarter, because of the effect of the hurricanes on the profits of insurance companies. In the second quarter, profits of financial corporations decreased $7.9 billion (2.2 percent).

Profits of nonfinancial corporations increased $9.4 billion (1.5 percent) in the third quarter after increasing $36.2 billion (6.0 percent) in the second. The third-quarter increase reflected an increase in gross value added; profits per unit were unchanged.

Profits from the rest of the world increased $3.4 billion (1.8 percent) after decreasing $20.0 billion (9.7 percent). The upturn stemmed from a sharp deceleration in payments by domestic affiliates to their foreign parents that are deducted in the calculation of profits from the rest of the world. These payments increased $4.2 billion (3.5 percent) after increasing $26.6 billion (28.4 percent). Receipts from foreign affiliates of domestic parents increased at about the same rate in the third quarter as in the second.

Taxes on corporate income decreased $17.9 billion (6.6 percent) in the third quarter, and after-tax profits from current production decreased $38.0 billion (4.2 percent).

Net cash flow from current production, a profits-related measure of internally generated funds available for investment, decreased $1.6 billion. (8) The ratio of cash flow to nonresidential fixed investment, an indicator of the extent to which the current level of investment could be financed by internally generated corporate funds, decreased to 102.7 in the third quarter from 106.2 in the second. However, the ratio remained above 100 for the eighth consecutive quarter.

Revisions. The revised third-quarter estimate of profits from current production is $28.3 billion less than the preliminary estimate released in November. Profits of domestic financial corporations were revised down $22.0 billion, and profits from the rest of the world were revised down $5.4 billion. Profits of domestic nonfinancial corporations were revised down slightly.

Industry profits. The current-production measure of profits is not available at the detailed industry level, because estimates of the capital consumption adjustment (CCAdj) are not available at this level. (CCAdj is only available for total financial industries and for total nonfinancial industries). Consequently, industry profits are best measured by profits with inventory valuation adjustment (IVA).

In the third quarter, total domestic industry profits with IVA decreased $48.9 billion.

For domestic financial industries, profits with IVA decreased $68.8 billion (chart 2). The decrease was accounted for by profits of property and casualty insurance carriers, reflecting the effect of the hurricanes.

For domestic nonfinancial corporations, profits with IVA increased $19.9 billion. Increases in the profits of "other" nonfinancial industries (specifically, professional and technical services and real estate industries), of manufacturing industries (specifically, durable-goods manufacturing), of the wholesale trade industry, and of the information industries were partly offset by decreases in the profits of the retail trade industry and of the transportation and warehousing industries.

Table 1. Real Gross Domestic Product and Components

[Seasonally adjusted at annual rates]

 Change from
 preceding period

 (percent)

 2003 2004

 IV I II III
 Gross domestic
 product (GDP) 4.2 4.5 3.3 4.0
Personal consumption
 expenditures 3.6 4.1 1.6 5.1
 Durable goods 3.9 2.2 -0.3 17.2
 Nondurable goods 5.1 6.7 0.1 4.7
 Services 2.8 3.3 2.7 3.0
Gross private domestic
 investment 13.9 12.3 19.0 2.4
 Fixed investment 10.5 4.5 13.9 8.8
 Nonresidential 11.0 4.2 12.5 13.0
 Structures 7.9 -7.6 6.9 -1.1
 Equipment and
 software 12.0 8.0 14.2 17.5
 Residential 9.6 5.0 16.5 1.6
 Change in private
 inventories

Net exports of goods and
 services
 Exports 17.5 7.3 7.3 6.0
 Goods 16.1 9.1 6.0 9.5
 Services 20.6 3.4 10.2 -1.8
 Imports 17.1 10.6 12.6 4.6
 Goods 18.4 12.7 13.0 5.0
 Services 11.1 1.2 10.6 2.8
Government consumption
 expenditures and gross
 investment 1.6 2.5 2.2 0.7
 Federal 4.8 7.1 2.7 4.8
 National defense 11.6 10.6 1.9 10.1
 Nondefense -7.5 0.2 4.4 -5.3
 State and local -0.1 0.0 1.9 -1.7

 Contribution to percent change
 in real GDP

 (percentage points)

 2003 2004

 IV I II III
 Gross domestic
 product (GDP) 4.2 4.5 3.3 4.0
Personal consumption
 expenditures 2.50 2.90 1.10 3.57
 Durable goods 0.33 0.19 -0.02 1.37
 Nondurable goods 1.01 1.33 0.03 0.94
 Services 1.15 1.39 1.10 1.26
Gross private domestic
 investment 2.04 1.86 2.85 0.40
 Fixed investment 1.57 0.69 2.07 1.37
 Nonresidential 1.07 0.42 1.21 1.27
 Structures 0.18 -0.19 0.16 -0.03
 Equipment and
 software 0.89 0.61 1.05 1.30
 Residential 0.50 0.27 0.86 0.09
 Change in private
 inventories 0.47 1.17 0.78 -0.97

Net exports of goods and
 services -0.66 -0.76 -1.06 -0.10
 Exports 1.55 0.70 0.70 0.59
 Goods 1.00 0.60 0.41 0.64
 Services 0.56 0.10 0.30 -0.06
 Imports -2.22 -1.46 -1.77 -0.69
 Goods -1.96 -1.43 -1.52 -0.62
 Services -0.26 -0.03 -0.25 -0.07
Government consumption
 expenditures and gross
 investment 0.31 0.48 0.41 0.13
 Federal 0.33 0.48 0.18 0.33
 National defense 0.50 0.47 0.09 0.45
 Nondefense -0.18 0.00 0.10 -0.12
 State and local -0.02 0.00 0.23 -0.20

 Share of
 current-
 dollar
 GDP

 (percent)

 2004

 III
 Gross domestic
 product (GDP) 100.0
Personal consumption
 expenditures 70.1
 Durable goods 8.5
 Nondurable goods 20.2
 Services 41.4
Gross private domestic
 investment 16.5
 Fixed investment 16.2
 Nonresidential 10.5
 Structures 2.4
 Equipment and
 software 8.1
 Residential 5.7
 Change in private
 inventories 0.3

Net exports of goods and
 services -5.2
 Exports 10.1
 Goods 7.1
 Services 3.0
 Imports 15.2
 Goods 12.8
 Services 2.5
Government consumption
 expenditures and gross
 investment 18.6
 Federal 6.9
 National defense 4.7
 Nondefense 2.2
 State and local 11.7

NOTE. Percent changes are from NIPA table 1.1.1, and contributions to
percent change are from NIPA table 1.1.2. Shares are from NIPA table
1.1.10.

Table 2. Final and Preliminary Estimates for the Third
Quarter of 2004

[Seasonally adjusted at annual rates]

 Percent change from
 preceding quarter

 Final Preliminary Final minus
 estimate estimate preliminary

 Gross domestic product
 (GDP) 4.0 3.9 0.1
Personal consumption
 expenditures 5.1 5.1 0.0
 Durable goods 17.2 17.2 0.0
 Nondurable goods 4.7 4.8 -0.1
 Services 3.0 2.9 0.1
Gross private domestic
 investment 2.4 2.8 -0.4
 Fixed investment 8.8 8.8 0.0
 Nonresidential 13.0 12.9 0.1
 Structures -1.1 -0.3 -0.8
 Equipment and software 17.5 17.2 0.3
 Residential 1.6 1.7 -0.1
 Change in private
 inventories
Net exports of goods and
 services
 Exports 6.0 6.3 -0.3
 Goods 9.5 9.1 0.4
 Services -1.8 0.2 -2.0
 Imports 4.6 6.0 -1.4
 Goods 5.0 5.6 -0.6
 Services 2.8 8.3 -5.5
Government consumption
 expenditures and gross
 investment 0.7 1.2 -0.5
 Federal 4.8 4.7 0.1
 National defense 10.1 9.8 0.3
 Nondefense -5.3 -5.2 -0.1
 State and local -1.7 -0.8 -0.9
Addenda:
 Final sales of domestic
 product 5.0 4.9 0.1
 Gross domestic purchases
 price index 1.9 1.8 0.1
 GDP price index 1.4 1.3 0.1

 Contribution to percent
 change in real GDP

 Final Preliminary Final minus
 estimate estimate preliminary
 Gross domestic product
 (GDP) 4.0 3.9 0.1
Personal consumption
 expenditures 3.57 3.53 0.04
 Durable goods 1.37 1.37 0.00
 Nondurable goods 0.94 0.96 -0.02
 Services 1.26 1.21 0.05
Gross private domestic
 investment 0.40 0.46 -0.06
 Fixed investment 1.37 1.37 0.00
 Nonresidential 1.27 1.27 0.00
 Structures -0.03 -0.01 -0.02
 Equipment and software 1.30 1.28 0.02
 Residential 0.09 0.10 -0.01
 Change in private -0.97 -0.91 -0.06
 inventories
Net exports of goods and
 services -0.10 -0.27 0.17
 Exports 0.59 0.62 -0.03
 Goods 0.64 0.62 0.02
 Services -0.06 0.01 -0.07
 Imports -0.69 -0.89 0.20
 Goods -0.62 -0.69 0.07
 Services -0.07 -0.20 0.13
Government consumption
 expenditures and gross
 investment 0.13 0.23 -0.10
 Federal 0.33 0.32 0.01
 National defense 0.45 0.44 0.01
 Nondefense -0.12 -0.12 0.00
 State and local -0.20 -0.09 -0.11
Addenda:
 Final sales of domestic
 product 4.97 4.86 0.11
 Gross domestic purchases
 price index
 GDP price index

Note. The final estimates for the third quarter of 2004 incorporate
the following revised or additional major source data that were
not available when the preliminary estimates were prepared.

Personal consumption expenditures: Revised retail sales for September.

Nonresidential fixed investment Revised construction put-in-place data
for August and September and revised manufacturers' shipments of
machinery and equipment for September.

Residential fixed investment: Revised construction put-in-place data
for August and September.

Change in private inventories: Revised manufacturers' and trade
inventories for September and newly available data on used vehicle
inventories for September.

Exports and imports of goods and services: Revised international
transactions data for the second and third quarters and revised data
on goods for September.

Government consumption expenditures and gross investment Revised
state and local construction put-in-place data for August: and
September.

Wages and salaries: Revised employment, average hourly earnings, and
average weekly hours for September, and newly available data on
employer costs for employee compensation for the third quarter.

GDP prices: Revised export and import prices for July through
September, revised unit-value index for petroleum imports for
September, and revised prices of single-family houses under
construction for the quarter.

Table 3. Corporate Profits

[Seasonally adjusted]

 Billions of dollars (annual rate)

 Level Change from preceding quarter

 2004 2003 2004

 III IV I II III
Current production
 measures:
 Corporate profits 1,118.0 72.0 36.5 8.3 -55.9
 Domestic industries 929.3 29.6 47.0 28.3 -59.3
 Financial 279.1 -0.5 19.8 -7.9 -68.7
 Nonfinancial 650.2 30.0 27.3 36.2 9.4
 Rest of the world 188.7 42.4 -10.5 -20.0 3.4
 Receipts from the
 rest of the
 world 313.1 40.3 5.6 6.6 7.5
 Less: Payments to
 the rest of the
 world 124.5 -2.2 16.2 26.6 4.2
 Less: Taxes on corporate
 income 253.3 13.6 4.2 14.7 -17.9
 Equals: Profits after
 tax 864.7 58.4 32.3 -6.4 -38.0
 Net dividends 424.0 2.3 7.0 9.8 10.8
 Undistributed profits
 from current
 production 440.7 56.2 25.3 -16.2 -48.8
 Net cash flow 1,271.8 63.2 5.9 -5.7 -1.6
Industry profits:
 Profits with IVA 895.0 64.7 -16.5 15.2 -45.6
 Domestic industries 706.3 22.3 -6.1 35.2 -48.9
 Financial 237.6 -0.8 8.4 -7.3 -8.8
 Nonfinancial 468.7 23.1 -14.3 42.4 19.9
 Utilities 21.1 5.7 -1.1 -1.7 -0.4
 Manufacturing 105.0 26.6 -11.9 13.3 10.2
 Wholesale trade 61.1 -3.0 -4.1 6.2 8.9
 Retail trade 64.7 -4.2 5.3 -6.9 -8.4
 Transportation and
 warehousing 7.3 0.5 -0.7 3.8 -8.2
 Information 21.6 -7.7 -5.6 23.1 5.1
 Other nonfinancial 187.9 5.1 3.9 4.4 12.8
 Rest of the world 188.7 42.4 -10.5 -20.0 3.4
Addenda:
 Profits before tax
 (without IVA and
 CCAdj) 932.8 85.2 -3.8 25.9 -55.5
 Profits after tax
 (without IVA and
 CCAdj) 679.5 71.6 -8.0 11.2 -37.6
 IVA -37.8 -20.5 -12.7 -10.8 10.0
 CCAdj 223.0 7.3 53.0 -6.9 -10.3

 Percent change from preceding
 quarter (quarterly rate)

 2003 2004

 IV I II III

Current production
 measures:
 Corporate profits 6.8 3.2 0.7 -4.8
 Domestic industries 3.3 5.1 2.9 -6.0
 Financial -0.1 5.9 -2.2 -19.7
 Nonfinancial 5.5 4.7 6.0 1.5
 Rest of the world 24.4 -4.9 -9.7 1.8
 Receipts from the
 rest of the
 world 15.9 1.9 2.2 2.5
 Less: Payments to
 the rest of the
 world -2.7 20.8 28.4 3.5
 Less: Taxes on corporate
 income 5.7 1.6 5.7 -6.6
 Equals: Profits after
 tax 7.1 3.7 -0.7 -4.2
 Net dividends 0.6 1.8 2.4 2.6
 Undistributed profits
 from current
 production 13.2 5.3 -3.2 -10.0
 Net cash flow 5.2 0.5 -0.4 -0.1
Industry profits:
 Profits with IVA 7.4 -1.8 1.6 -4.8
 Domestic industries 3.2 -0.8 4.9 -6.5
 Financial -0.3 2.7 -2.3 -22.5
 Nonfinancial 5.8 -3.4 10.4 4.4
 Utilities 30.6 -4.8 -7.1 -2.0
 Manufacturing 40.0 -12.8 16.4 10.7
 Wholesale trade -5.6 -8.3 13.7 17.0
 Retail trade -5.3 7.2 -8.6 -11.5
 Transportation and
 warehousing 4.1 -6.1 33.0 -53.1
 Information
 Other nonfinancial 3.1 2.3 2.6 7.3
 Rest of the world 24.4 -4.9 -9.7 1.8
Addenda:
 Profits before tax
 (without IVA and
 CCAdj) 9.7 -0.4 2.7 -5.6
 Profits after tax
 (without IVA and
 CCAdj) 11.2 -1.1 1.6 -5.3
 IVA
 CCAdj 4.1 28.3 -2.9 -4.4

NOTE. Levels of these and other profits series are shown in
NIPA tables 1.12, 1.14, 1.15, and 6.16D.

IVA Inventory valuation adjustment

CCAdj Capital consumption adjustment

(1.) Quarterly estimates in the NIPAs are expressed at seasonally adjusted annual rates, unless otherwise specified. Quarter-to-quarter dollar changes are differences between these published estimates. Percent changes are calculated from unrounded data and are annualized. "Real" estimates are presented in chained (2000) dollars, and price indexes are chain-type measures.

(2.) In this article, "government spending" is shorthand for "government consumption expenditures and gross investment, "inventory investment" is shorthand for the NIPA series "change in private inventories," and "consumer spending" is shorthand for "personal consumption expenditures."

(3.) This treatment, which was introduced as part of the 2003 comprehensive revision of the NIPAs, incorporates expected, rather than actual, losses and thus eliminates the large swings in measured insurance services that had previously been associated with catastrophes. For more information, see Brent R. Moulton and Eugene P. Seskin, "Preview of the 2003 Comprehensive Revision of the National Income and Product Accounts: Changes in Definitions and Classifications," SURVEY OF CURRENT BUSINESS 83 (June 2003): 17-34; and Baoline Chert and Dennis J. Fixler, "Measuring the Services of Property-Casualty Insurance in the NIPAs: Changes in Concepts and Methods," SURVEY 83 (October 2003): 10-26.

(4.) GNP is a measure of the goods and services produced by labor and property supplied by U.S. residents regardless of where they are located; in contrast, GDP is a measure of the goods and services produced by labor and property in the United States, regardless of nationality. The two measures are related as follows: GNP equals GDP plus income receipts from the rest of the world minus income payments to the rest of the world.

(5.) Profits from current production is estimated as the sum of profits before tax, the inventory valuation adjustment, and the capital consumption adjustment; it is shown as "corporate profits with inventory valuation and capital consumption adjustments" in NIPA tables 1.7.5, 1.10-1.12, 1.14-1.16, and 6.16D. Percent changes in profits are shown at quarterly, not annual, rates.

(6.) Profits from the rest of the world is the difference between (1) receipts by U.S. residents of earnings from foreign affiliates plus dividends received by U.S. residents from unaffiliated foreign corporations and (2) payments by U.S. affiliates of earnings to foreign parents plus dividends paid by U.S. corporations to unaffiliated foreign residents. These estimates include capital consumption adjustments (but not inventory valuation adjustments) and are derived from BEA's international transactions accounts.

(7.) For additional information on the effects of the third-quarter hurricanes on corporate profits and other NIPA income measures, see BEA's Web site, <www.bea.gov/bea/dn/hurricane.htm>. More detail is available at <www.bea.gov/bea/dn/hurrican.pdf>.

(8.) Cash flow from current production is undistributed profits with inventory valuation and capital consumption adjustments plus the consumption of fixed capital.