BUSINESS SITUATION.

Larkins, Daniel ; Morris, Ralph W. ; Argueta, Jennifer S 等

PRODUCTION in the first quarter of 2001 stepped up less than previously estimated, as inventories were drawn down more than previously estimated. (The source data underlying these revisions are discussed in the section "Revisions") According to the "preliminary" estimates of the national income and product accounts (NIPA's),

* Real gross domestic product (GDP)--a measure of domestic production of goods and services --increased 1.3 percent in the first quarter, 0.7 percentage point less than last month's "advance" estimate (table 1 and chart 1).(1) GDP had increased 1.0 percent in the fourth quarter of 2000 and 2.2 percent in the third quarter. (The average rate of growth in the current expansion, which began in the second quarter of 1991, is 3.6 percent.)

[GRAPH OMITTED]

Table 1.--Real Gross Domestic Product, Real Gross Domestic
Purchases, and Real Final Sales to Domestic Purchasers

[Seasonally adjusted at annual rates]

 Billions of chained (1996) dollars

 Level Change from preceding
 quarter

 2001 2000 2001

 I II III IV I

Gross domestic product 9,424.5 127.1 50.6 24.2 30.8

Less: Exports of goods and
 services 1,132.1 37.0 37.0 -19.0 -7.7
Plus: Imports of goods and
 services 1,544.0 63.5 61.2 -4.9 -37.5

Equals: Gross domestic
 purchases 9,807.9 150.7 71.7 37.2 4.7

Less: Change in private
 inventories -18.9 42.0 -6.1 -16.8 -74.6
 Nonfarm -25.1 39.3 -4.9 -16.9 -75.6
 Farm 6.2 2.6 -1.2 .3 .9

Equals: Final sales to
 domestic purchaser 9,813.3 110.6 76.8 51.6 74.4

 Personal consumption
 expenditures 6,418.8 47.1 69.2 43.5 45.5
 Durable goods 922.3 -11.5 16.5 -7.2 26.3
 Nondurable goods 1,894.4 16.3 21.5 4.8 7.0
 Services 3,618.5 39.5 32.6 43.2 16.0
 Private fixed investment 1,797.1 46.7 13.7 -4.2 10.0
 Nonresidential 1,445.8 47.2 26.3 -.5 7.5
 Structures 305.7 3.0 9.6 7.2 11.9
 Equipment and software 1,145.2 46.2 15.8 -9.7 -7.5
 Residential 361.5 1.2 -10.3 -3.3 2.5
 Government consumption
 expenditures and
 gross investment 1,608.1 18.6 -5.5 11.4 18.5
 Federal 557.5 21.7 -13.0 5.1 6.6
 National defense 358.4 13.6 -8.9 7.5 4.7
 Nondefense 199.0 8.2 -4.2 -2.3 1.9
 State and local 1,050.0 -2.8 7.3 6.2 11.9

Addendum: Final sales of
 domestic product 9,429.7 87.3 55.6 38.6 100.2

 Percent change from
 preceding quarter

 2000 2001

 II III IV I

Gross domestic product 5.6 2.2 1.0 1.3

Less: Exports of goods and
 services 14.3 13.9 -6.4 -2.7
Plus: Imports of goods and
 services 18.6 17.0 -1.2 -9.1

Equals: Gross domestic
 purchases 6.5 3.0 1.5 .2

Less: Change in private
 inventories ... ... ... ...
 Nonfarm ... ... ... ...
 Farm ... ... ... ...

Equals: Final sales to
 domestic purchaser 4.7 3.2 2.1 3.1

 Personal consumption
 expenditures 3.1 4.5 2.8 2.9
 Durable goods -5.0 7.6 -3.1 12.2
 Nondurable goods 3.6 4.7 1.0 1.5
 Services 4.6 3.7 4.9 1.8
 Private fixed investment 11.2 3.1 -.9 2.3
 Nonresidential 14.6 7.7 -.1 2.1
 Structures 4.4 14.6 10.4 17.2
 Equipment and software 17.9 5.6 -3.3 -2.6
 Residential 1.3 -10.6 -3.6 2.9
 Government consumption
 expenditures and
 gross investment 4.8 -1.4 2.9 4.7
 Federal 17.2 -9.0 3.8 4.9
 National defense 16.9 -9.7 8.9 5.4
 Nondefense 17.8 -7.9 -4.6 3.9
 State and local -1.1 2.9 2.5 4.7

Addendum: Final sales of
 domestic product 3.9 2.4 1.7 4.4

NOTE.--Chained (1996) dollar series are calculated as the product of
the chain-type quantity index and the 1996 current-dollar value of the
corresponding series, divided by 100. Because the formula for the
chain-type quantity indexes uses weights of more than one period, the
corresponding chained-dollar estimates usually are not additive.
Chained (1996) dollar levels and residuals, which measure the extent
of nonadditivity in each table, are shown in NIPA tables 1.2, 1.4, and
1.6. Percent changes are calculated from unfounded data. Percent
changes in major aggregates are shown in NIPA table S.1. (See "Selected
NIPA Tables," which begins on page D-2 in this issue.)

* Real private inventories decreased $18.9 billion, more than twice as much as the $7.1 billion reported last month. The rundown in stocks was the first in 9 1/2 years.

* Growth of final sales of domestic product--GDP less inventory investment--was revised down much less than that of GDP, only 0.2 percentage point, to 4.4 percent.

* Growth of gross domestic purchases--a measure of domestic demand for goods and services regardless of where they were produced--was revised down 0.4 percentage point, to 0.2 percent.(2) Gross domestic purchases had increased 1.5 percent in the fourth quarter and twice that in the third.

* Growth of real disposable personal income was revised up 0.3 percentage point, to 2.3 percent. It was 0.7 percent in the fourth quarter and 2.6 percent in the third.

* Production of goods was revised down. As a result, the preliminary estimate shows a second consecutive quarterly decrease, the first back-to-back decreases since the last recession; the advance estimate had shown an upturn in goods production.

Despite these revisions, the preliminary and advance estimates paint pictures of the economy that are similar in many important respects.

* Both consumer spending and government spending contributed substantially to the increase in real GDP in the first quarter; they had also contributed substantially to the fourth-quarter increase (table 2).(3)

Table 2.--Contributions to Percent Change in Real Gross
Domestic Product

[Seasonally adjusted at annual rates]

 2000 2001

 II III IV I

Percent change at annual rate:
 Gross domestic product 5.6 2.2 1.0 1.3

Percentage points at annual rates:
 Personal consumption expenditures 2.14 2.99 1.87 1.95
 Durable goods -.42 .61 -.26 .94
 Nondurable goods .74 .93 .21 .30
 Services 1.83 1.46 1.92 .71
 Gross private domestic investment 3.66 .33 -.78 -2.56
 Fixed investment 1.93 .55 -.17 .40
 Nonresidential 1.87 1.02 -.02 .28
 Structures .14 .44 .33 .55
 Equipment and software 1.73 .58 -.35 -.27
 Residential .06 -.47 -.15 .12
 Change in private inventories 1.73 -.22 -.62 -2.96
 Net exports of goods and services -1.00 -.90 -.55 1.11
 Exports 1.48 1.45 -.74 -.30
 Goods 1.37 1.54 -.84 -.37
 Services .11 -.09 .10 .07
 Imports -2.48 -2.35 .19 1.41
 Goods -2.26 -1.90 .28 1.34
 Services -.22 -.44 -.09 .06
 Government consumption expenditures
 and good investment .85 -.24 .50 .82
 Federal .97 -.57 .22 .29
 National defense .60 -.38 .32 .20
 Nondefense .37 -.18 -.10 .08
 State and local -.12 .33 .28 .53

NOTE.--More detailed contributions to percent change in real gross
domestic product are shown in NIPA table 8.2. Contributions to
percent change in major components of real gross domestic
product are shown in tables 8.3 through 8.6.

* The largest offset to GDP growth in the first quarter was a sharp drop in inventory investment (In the preliminary estimate, it subtracted almost 3 percentage points from GDP growth; in the advance, about 2 1/2 percentage points.) The drop reflected a swing from accumulation to liquidation of inventory stocks.

* Final sales of domestic product accelerated posting its biggest increase in a year.

* Imports fell much more than exports; as a result, the increase in gross domestic purchases was smaller than that in GDP for only the second time in 4 years.

* Real disposable personal income accelerated, and the personal saving rate, at -0.9 percent, was at its lowest quarterly level since the beginning of the series in 1946. The national saving rate decreased to 17.5 percent, its third consecutive decrease.(4)

* Real final sales of computers posted below-average growth for the second quarter in a row, and real motor vehicle output decreased substantially for the third consecutive quarter (table 3). Excluding computers, real GDP would have increased 1.1 percent in the first quarter after having increased 0.8 percent in the fourth. Excluding motor vehicles, real GDP would have increased 1.9 percent in each quarter.

Table 3.--Real Gross Domestic Product by Type of Product

[Seasonally adjusted at annual rates]

 Billions of chained (1996) dollars

 Level Change from preceding
 quarter

 2001 2000 2001

 I II III IV I

Gross domestic product 9,424.5 127.1 50.6 24.2 30.8

 Goods 3,800.5 76.9 39.0 -31.7 -25.6
 Services 4,812.3 59.5 14.8 46.0 32.7
 Structures 821.9 -6.1 -1.2 5.3 19.0

Addenda:
 Motor vehicle output 307.1 -4.1 -16.1 -19.9 -12.1
 Gross domestic product
 less motor vehicle
 output 9,114.3 130.6 65.5 42.6 41.9

 Final sales of computers ... ... ... ... ...
 Gross domestic product
 less final sales of
 computers ... ... ... ... ...

 Percent change from
 preceding quarter

 2000 2001

 II III IV I

Gross domestic product 5.6 2.2 1.0 1.3

 Goods 8.5 4.1 -3.2 -2.7
 Services 5.2 1.3 3.9 2.8
 Structures -3.0 -.6 2.7 9.8

Addenda:
 Motor vehicle output -4.5 -16.9 -21.5 -14.3
 Gross domestic product
 less motor vehicle
 output 6.0 3.0 1.9 1.9

 Final sales of computers 55.4 40.6 17.9 18.7
 Gross domestic product
 less final sales of
 computers 5.2 1.8 .8 1.1

NOTE.--See note to table 1 for an explanation of chained (1996) dollar
series. Chained (1996) dollar levels and residuals for most items are
shown in NIPA table 1.4. Detail on motor vehicle output is shown in
NIPA table 8.9B.

Personal Consumption Expenditures

Real personal consumption expenditures (PCE) increased 2.9 percent in the first quarter, about the same as in the fourth. An upturn in durable goods and a modest acceleration in nondurable goods were offset by a deceleration in services (table 4 and chart 2). For the current expansion, real PCE has increased at an average annual rate of 3.8 percent.

[GRAPH OMITTED]

Table 4.--Real Personal Consumption Expenditures

[Seasonally adjusted at annual rates]

 Billions of chained (1996) dollars

 Level Change from preceding
 quarter

 2001 2000 2001

 I II III IV I

Personal consumption
 expenditures 6,418.8 47.1 69.2 43.5 45.5

 Durable goods 922.3 -11.5 16.5 -7.2 26.3
 Motor vehicles and parts 349.8 -15.9 6.1 -9.7 17.5
 Of which: New autos 101.9 -3.7 -4.0 -3.2 3.8
 New light trucks 114.0 -7.8 7.0 -3.7 10.1
 Furniture and household
 equipment 395.5 5.2 7.9 2.7 5.6
 Other(1) 180.5 1.0 2.6 1.0 1.9

 Nondurable goods 1,894.4 16.3 21.5 4.8 7.0
 Food 880.1 4.3 2.6 2.3 -1.3
 Clothing and shoes 352.1 4.6 7.9 -.2 2.1
 Gasoline, fuel oil, and
 other energy goods 150.7 1.7 2.0 0 1.2
 Other(2) 513.7 5.9 9.4 2.7 5.1

 Services 3,618.5 39.5 32.6 43.2 16.0
 Housing 861.5 5.6 4.7 5.1 4.7
 Household operation 377.1 10.1 .4 5.1 -3.2
 Electricity and gas 134.6 6.5 -2.6 4.6 -3.9
 Other household
 operation 242.5 3.7 3.0 .3 1.1
 Transportation 254.2 2.4 .9 1.6 1.8
 Medical care 923.2 6.4 5.3 7.8 6.3
 Recreation 248.7 4.9 4.5 5.7 6.3
 Other 951.9 10.6 16.3 17.8 -.2

 Percent change from preceding
 quarter

 2000 2001

 II III IV I

Personal consumption 3.1 4.5 2.8 2.9
 expenditures

 Durable goods -5.0 7.6 -3.1 12.2
 Motor vehicles and parts -16.9 7.5 -10.9 22.8
 Of which: New autos -13.0 -14.4 -11.9 16.2
 New light trucks -25.7 30.7 -13.1 45.0
 Furniture and household
 equipment 5.6 8.6 2.8 5.9
 Other(1) 2.3 6.1 2.4 4.4

 Nondurable goods 3.6 4.7 1.0 1.5
 Food 2.0 1.2 1.1 -.6
 Clothing and shoes 5.6 9.5 -.2 2.4
 Gasoline, fuel oil, and
 other energy goods 4.5 5.7 0 3.1
 Other(2) 4.9 7.8 2.1 4.0

 Services 4.6 3.7 4.9 1.8
 Housing 2.7 2.3 2.4 2.2
 Household operation 11.6 .4 5.6 -3.3
 Electricity and gas 21.4 -7.4 14.6 -10.9
 Other household
 operation 6.4 5.2 .5 1.7
 Transportation 3.9 1.5 2.5 2.9
 Medical care 2.9 2.4 3.5 2.8
 Recreation 9.0 7.9 10.1 10.8
 Other 4.8 7.3 7.9 -.1

(1.) Includes jewelry and watches, ophthalmic products and orthopedic
equipment, books and maps, bicycles and motorcycles, guns and sporting
equipment, photographic equipment, boats, and pleasure aircraft.

(2.) Includes tobacco, toilet articles, drug preparations and sundries,
stationery and writing supplies, toys, film, flowers, cleaning
preparations and paper products, semidurale house furnishings,
and magazines and newspapers.

NOTE.--See note to table 1 for an explanation of chained (1996) dollar
series. Chained (1996) dollar levels and residuals are shown in NIPA
tables 2.3 and 8.9B (motor vehicles). Percent changes in major
aggregates are shown in NIPA table S.1.

Expenditures for durable goods increased 12.2 percent after decreasing 3.1 percent. Motor vehicles and parts turned up, primarily reflecting upturns in new light trucks and in new and used autos. Furniture and household equipment and "other" durable goods accelerated.

Expenditures for services slowed to a 1.8-percent increase after increasing 4.9 percent. "Other" services edged down after increasing, partly reflecting a downturn in brokerage and investment counseling. Household operation declined after increasing, reflecting a downturn in electricity and gas.

Expenditures for nondurable goods increased 1.5 percent after increasing 1.0 percent. Clothing and shoes turned up; "other" nondurable goods and gasoline, fuel oil, and other energy products accelerated. In contrast, food turned down.

Some of the factors frequently considered in analyses of consumer spending were less favorable (chart 3). The Index of Consumer Sentiment (prepared by the University of Michigan's Survey Research Center) decreased for the fourth consecutive quarter, and the unemployment rate increased to 4.2 percent. In contrast, real disposable personal income rebounded in the first quarter after slowing sharply in the fourth.

[GRAPH OMITTED]

Private Fixed Investment

In the first quarter, real fixed investment rebounded from a fourth-quarter decrease--its first drop in 5 1/2 years (table 5 and chart 4). Nonresidential investment increased after changing little; residential investment increased after decreasing.

[GRAPH OMITTED]

Table 5.--Real Private Fixed Investment
[Seasonally adjusted at annual rates]

 Billions of chained
 (1996) dollars

 Level Change from
 preceding
 quarter

 2001 2000

 I II III

Private fixed investment 1,797.1 46.7 13.7

 Nonresidential 1,445.8 47.2 26.3
 Structures 305.7 3.0 9.6
 Nonresidential buildings,
 including farm 211.8 3.0 3.2
 Utilities 49.3 -2.1 2.8
 Mining exploration,
 shafts, and wells 37.4 2.3 2.1
 Other structures 7.0 -.4 1.6

 Equipment and software 1,145.2 46.2 15.8
 Information processing
 equipment and software 698.9 39.7 26.5
 Computers and peripheral
 equipment(1) 327.8 33.2 27.0
 Software(2) 238.4 9.5 9.8
 Other 194.5 9.3 .9
 Industrial equipment 165.9 5.1 3.4
 Transportation equipment 176.1 1.9 -8.6
 Of which: Motor vehicles 141.8 -8.0 -4.4
 Other 138.2 3.4 -1.1

 Residential 361.5 1.2 -10.3
 Structures 351.8 1.1 -10.3
 Single-family 187.1 -2.3 -8.6
 Multifamily 24.0 -.2 -1.8
 Other structures(3) 140.5 3.7 .3
 Equipment 9.9 0 .1

 Billions of Percent change
 chained (1996) from preceding
 dollars quarter

 Change from
 preceding
 quarter

 2000 2001 2000

 IV I II III

Private fixed investment -4.2 10.0 11.2 3.1

 Nonresidential -.5 7.5 14.6 7.7
 Structures 7.2 11.9 4.4 14.6
 Nonresidential buildings,
 including farm 1.9 7.2 6.2 6.6
 Utilities 3.8 -.1 -17.4 28.6
 Mining exploration,
 shafts, and wells 2.0 4.9 40.9 33.3
 Other structures -.3 -.8 -24.3 147.1

 Equipment and software -9.7 -7.5 17.9 5.6
 Information processing
 equipment and software 16.7 -13.4 27.7 16.8
 Computers and peripheral
 equipment(1) 6.9 -3.4 60.5 41.6
 Software(2) 6.5 -2.4 18.9 18.6
 Other 4.2 -7.2 21.4 1.7
 Industrial equipment -.4 -1.1 13.5 8.5
 Transportation equipment -18.6 4.1 3.9 -16.1
 Of which: Motor vehicles -18.7 6.1 -17.8 -10.6
 Other -2.6 .5 10.2 -3.3

 Residential -3.3 2.5 1.3 -10.6
 Structures -3.4 2.6 1.3 -10.9
 Single-family -1.7 3.9 -4.5 -16.7
 Multifamily .7 1.5 -2.5 -27.7
 Other structures(3) -2.5 -3.0 10.6 .9
 Equipment .1 0 1.9 1.2

 Percent change
 from preceding
 quarter

 2000 2001

 IV I

Private fixed investment -0.9 2.3

 Nonresidential -.1 2.1
 Structures 10.4 17.2
 Nonresidential buildings,
 including farm 3.9 14.9
 Utilities 37.8 -1.2
 Mining exploration,
 shafts, and wells 27.7 76.7
 Other structures -16.1 -34.0

 Equipment and software -3.3 -2.6
 Information processing
 equipment and software 10.0 -7.3
 Computers and peripheral
 equipment(1) 8.7 -4.0
 Software(2) 11.6 -3.9
 Other 8.8 -13.4
 Industrial equipment -.8 -2.6
 Transportation equipment -33.7 10.0
 Of which: Motor vehicles -40.4 19.4
 Other -7.1 1.4

 Residential -3.6 2.9
 Structures -3.8 2.9
 Single-family -3.6 8.7
 Multifamily 13.4 31.1
 Other structures(3) -6.6 -8.3
 Equipment 3.6 0

(1.) Includes new computers and peripheral equipment only.

(2.) Excludes software "embedded," or bundled, in computers and
other equipment.

(3.) Includes home improvements, new manufactured home sales, brokers'
commissions on home sales, net purchases of used structures, and other
residential structures (which consists primarily of dormitories and of
fraternity and sorority houses).

NOTE.--See note to table 1 for an explanation of chained (1996) dollar
series. Chained (1996) dollar levels and residuals are shown in NIPA
tables 5.5 and 8.9B (motor vehicles). Percent changes in major
aggregates are shown in NIPA table S.1.

Nonresidential fixed investment.--Real private nonresidential fixed investment increased 2.1 percent after slipping 0.1 percent. Spending on structures accelerated, while spending on equipment and software decreased almost as much as in the fourth quarter.

Information processing equipment and software fell. By component, communications equipment posted the largest decrease; computers decreased for the first time since 1991, and software decreased for the first time since 1982. Industrial equipment decreased modestly for the second straight quarter. Transportation equipment turned up after two quarterly decreases; the upturn reflected the pattern of motor vehicles.

The investment climate has been mixed in recent quarters. Domestic corporate profits has decreased in the last three quarters, and the capacity utilization rate edged down in the third quarter and dropped in the fourth and first quarters. Real final sales of domestic product posted subpar growth in the last two quarters of 2000, but it increased 4.4 percent in the first quarter of 2001. Long-term interest rates have trended down; for example, the yield on high-grade corporate bonds decreased from 7.85 percent in May 2000 to 6.87 percent in March 2001 (chart 5).

[GRAPH OMITTED]

Residential investment.--Real private residential investment increased 2.9 percent after decreasing 3.6 percent. Single-family structures turned up, and multifamily structures increased more than in the fourth quarter. In contrast, "other" residential structures decreased a little more than in the fourth quarter; the first-quarter decrease largely reflected a drop in brokers' commissions on home sales.

Inventory Investment

Real inventory investment (that is, change in private inventories) was -$18.9 billion in the first quarter, as the stock of inventories decreased for the first time since the third quarter of 1991 (table 6 and chart 6). This liquidation followed an accumulation of $55.7 billion in the fourth quarter. The resulting $74.6 billion decrease in inventory investment was substantially larger than any other decrease during the current expansion.

[GRAPH OMITTED]

Table 6.--Real Change in Private Inventories
[Billions of chained (1996) dollars;
seasonally adjusted at annual rates]

 Level

 2000 2001

 I II III IV I

Change in private inventories 36.6 78.6 72.5 55.7 -18.9

 Farm 3.6 6.2 5.0 5.3 6.2

 Nonfarm 33.0 72.3 67.4 50.5 -25.1
 Manufacturing 10.3 17.6 22.6 12.2 -11.4
 Durable goods 6.5 11.3 15.4 17.9 -7.8
 Nondurable goods 3.8 6.4 7.2 -5.0 -3.6
 Wholesale trade 21.5 32.5 22.3 13.2 -2.8
 Durable goods 17.3 23.8 10.6 7.7 -4.9
 Nondurable goods 4.4 8.9 11.4 5.4 1.9
 Retail trade -4.4 21.5 20.0 22.7 -18.6
 Durable goods -3.6 16.0 13.9 14.8 -22.6
 Of which: Motor
 vehicle dealers -6.4 9.7 10.5 7.4 -20.6
 Nondurable goods -.8 5.7 6.2 8.1 3.3
 Other(1) 6.1 .9 2.8 2.3 7.1
 Durable goods 1.3 -1.5 .2 1.0 2.0
 Nondurable goods 4.8 2.5 2.6 1.3 5.2

Addenda:
 Motor vehicles -2.0 14.7 6.4 9.1 -24.8
 Autos .4 2.3 8.9 5.0 -8.0
 Trucks -2.1 11.2 -1.8 4.0 -15.5

 Change from preceding quarter

 2000 2001

 II III IV I

Change in private inventories 42.0 -6.1 -16.8 -74.6

 Farm 2.6 -1.2 .3 .9

 Nonfarm 39.3 -4.9 -16.9 -75.6
 Manufacturing 7.3 5.0 -10.4 -23.6
 Durable goods 4.8 4.1 2.5 -25.7
 Nondurable goods 2.6 .8 -12.2 1.4
 Wholesale trade 11.0 -10.2 -9.1 -16.0
 Durable goods 6.5 -13.2 -2.9 -12.6
 Nondurable goods 4.5 2.5 -6.0 -3.5
 Retail trade 25.9 -1.5 2.7 -41.3
 Durable goods 19.6 -2.1 .9 -37.4
 Of which: Motor
 vehicle dealers 16.1 .8 -3.1 -28.0
 Nondurable goods 6.5 .5 1.9 -4.8
 Other(1) -5.2 1.9 -.5 4.8
 Durable goods -2.8 1.7 .8 1.0
 Nondurable goods -2.3 .1 -1.3 3.9

Addenda:
 Motor vehicles 16.7 -8.3 2.7 -33.9
 Autos 1.9 6.6 -3.9 -13.0
 Trucks 13.3 -13.0 5.8 -19.5

(1.) Includes inventories held by establishments in the following
industries: Mining; construction; public utilities; transportation;
communication; finance, insurance, and real estate; and services.

NOTE.--See note to table 1 for an explanation of chained (1996)
dollar series. Chained (1996) dollar levels and residuals are shown
in NIPA tables 5.11 and 8.98 (motor vehicles).

Retail trade, manufacturing, and wholesale trade all contributed to the first-quarter decrease in inventory investment. In contrast, investment in "other" nonfarm inventories and in farm inventories increased.

Retail inventories decreased $18.6 billion after increasing $22.7 billion. Inventories of durable-goods retailers decreased after increasing; inventories of motor vehicle dealers accounted for about three-fourths of the downturn. Inventories of nondurable-goods retailers increased less than in the fourth quarter.

Manufacturing inventories decreased $11.4 billion after increasing $12.2 billion. Inventories of durable-goods manufacturers turned down. Inventories of electronic machinery and transportation equipment other than motor vehicles decreased after increasing, and inventories of primary metals and motor vehicles decreased more than in the fourth quarter. Inventories of nondurable-goods manufacturers decreased less than in the fourth quarter.

Wholesale inventories decreased $2.8 billion after increasing $13.2 billion. Inventories of durable goods turned down; about half of the downturn was accounted for by motor vehicles. Inventories of nondurable goods increased less than in the fourth quarter; the slowdown reflected a downturn in paper products.

Farm inventories increased $6.2 billion after increasing $5.3 billion. Livestock inventories accounted for the step-up.

The ratio of real private nonfarm inventories to final sales of goods and structures decreased to 3.58 from 3.65 (see NIPA table 5.13). A ratio that includes all final sales of domestic businesses decreased to 2.06 from 2.09.(5) For both ratios, the decreases followed three quarters of increases and brought them back down to virtually the same levels as a year ago--the lowest levels in the current expansion.

Exports and Imports

Both exports and imports decreased for the second consecutive quarter--exports after 6 consecutive increases, and imports after 38 consecutive increases.

Real exports of goods decreased 4.6 percent, about half as much as in the fourth quarter (table 7 and chart 7). Nonautomotive capital goods decreased less than in the fourth quarter, largely because of an upturn in civilian aircraft. Nonautomotive consumer goods and foods, feeds, and beverages also turned up.

[GRAPH OMITTED]

Table 7.--Real Exports and Imports of Goods and Services

[Seasonally adjusted at annual rates]

 Billions of chained (1996) dollars

 Level Change from preceding
 quarter

 2001 2000 2001

 I II III IV I

Exports of goods and services 1,132.1 37.0 37.0 -19.0 -7.7

 Exports of goods(1) 841.9 35.4 40.7 -22.4 -9.9
 Foods, feeds, and beverages 62.0 -.5 5.8 -4.6 1.9
 Industrial supplies
 and materials 168.6 3.7 8.1 -1.2 -3.7
 Capital goods, except
 automotive 402.4 34.3 20.8 -11.0 -2.9
 Automotive vehicles,
 engines, and parts 69.4 -.4 .6 -2.7 -6.7
 Consumer goods, except
 automotive 93.0 1.2 3.0 -2.7 4.9
 Other 48.7 -1.7 3.2 -.9 -2.6
 Exports of services(1) 293.0 2.5 -2.1 2.5 1.6

Imports of goods and services 1,544.0 63.5 61.2 -4.9 -37.5

 Imports of goods(1) 1,320.5 58.6 50.1 -7.3 -36.2
 Foods, feeds, and beverages 49.4 1.5 2.3 -.6 -1.1
 Industrial supplies and
 materials, except
 petroleum and products 166.2 -1.3 4.6 -3.5 -.3
 Petroleum and products 91.3 6.5 -1.1 -1.0 5.2
 Capital goods, except
 automotive 463.1 33.7 27.4 4.8 -22.7
 Automotive vehicles,
 engines, and parts 180.6 1.4 6.8 -8.6 -9.6
 Consumer goods, except
 automotive 293.5 17.7 4.2 5.2 -4.1
 Other 81.9 2.0 10.0 -1.2 -9.1
 Imports of services(1) 225.4 5.3 11.1 2.2 -1.6

 Percent change from preceding
 quarter

 2000 2001

 II III IV I

Exports of goods and services 14.3 13.9 -6.4 -2.7

 Exports of goods(1) 19.0 21.0 -9.9 -4.6
 Foods, feeds, and beverages -3.3 45.7 -25.7 13.2
 Industrial supplies
 and materials 9.4 21.0 -2.7 -8.4
 Capital goods, except
 automotive 43.6 22.9 -10.1 -2.9
 Automotive vehicles,
 engines, and parts -2.1 3.2 -13.2 -30.6
 Consumer goods, except
 automotive 5.7 14.8 -11.6 24.3
 Other -12.5 28.2 -6.2 -18.9
 Exports of services(1) 3.5 -2.8 3.4 2.3

Imports of goods and services 18.6 17.0 -1.2 -9.1

 Imports of goods(1) 20.0 16.2 -2.1 -10.2
 Foods, feeds, and beverages 13.0 20.0 -4.6 -8.1
 Industrial supplies and
 materials, except
 petroleum and products -3.0 11.6 -8.0 -.8
 Petroleum and products 35.3 -4.9 -4.3 26.6
 Capital goods, except
 automotive 36.2 26.5 4.1 -17.4
 Automotive vehicles,
 engines, and parts 3.1 14.9 -16.3 -18.7
 Consumer goods, except
 automotive 28.9 5.9 7.4 -5.4
 Other 10.0 58.7 -5.2 -34.3
 Imports of services(1) 10.6 22.3 4.0 -2.8

(1.) Exports and imports of certain goods, primarily military
equipment purchased and sold by the Federal Government, are
included in services.

NOTE.--See note to table 1 for an explanation of chained (1996)
dollar series. Chained (1996) dollar levels and residuals are shown
in NIPA table 4.4. Percent changes in major aggregates are shown
in NIPA table S.1.

Exports of services increased less than in the fourth quarter. Downturns in passenger fares and in transfers under U.S. military agency sales contracts were mainly responsible for the small slowdown.

Real imports of goods decreased 10.2 percent, much more than in the fourth quarter (chart 8). Nonautomotive capital goods and nonautomotive consumer goods turned down; "other" goods decreased more than in the fourth quarter. In contrast, petroleum and products increased after a small decrease.

[GRAPH OMITTED]

Imports of services decreased after increasing. Travel and direct defense expenditures turned down, while "other transportation" decreased after no change. In contrast, royalties and license fees turned up, and "other private services" accelerated.

Government Spending

Government spending picked up in the first quarter. Real spending increased 4.7 percent after increasing 2.9 percent in the fourth quarter (table 8 and chart 9). Spending by both the Federal Government and State and local governments increased more than in the fourth quarter.

[GRAPH OMITTED]

Table 8.--Real Government Consumption Expenditures
and Gross Investment

[Seasonally adjusted at annual rates]

 Billions of chained (1996) dollars

 Level Change from preceding
 quarter

 2001 2000 2001

 I II III IV I

Government consumption
 expenditures and gross
 investment(1) 1,608.1 18.6 -5.5 11.4 18.5

 Federal 557.5 21.7 -13.0 5.1 6.6
 National defense 358.4 13.6 -8.9 7.5 4.7
 Consumption expenditures 298.9 12.7 -7.9 1.4 7.0
 Gross investment 60.0 .7 -1.0 6.6 -2.6
 Nondefense 199.0 8.2 -4.2 -2.3 1.9
 Consumption expenditures 150.6 5.4 -3.5 -3.8 2.5
 Gross investment 49.4 3.0 -.7 1.7 -.6

 State and local 1,050.0 -2.8 7.3 6.2 11.9
 Consumption expenditures 832.1 5.3 5.7 3.6 7.7
 Gross investment 218.4 -8.4 1.5 2.8 4.3

 Percent change from preceding
 quarter

 2000 2001

 II III IV I

Government consumption
 expenditures and gross
 investment(1) 4.8 -1.4 2.9 4.7

 Federal 17.2 -9.0 3.8 4.9
 National defense 16.9 -9.7 8.9 5.4
 Consumption expenditures 19.0 -10.1 2.0 9.9
 Gross investment 5.4 -7.0 56.3 -15.6
 Nondefense 17.8 -7.9 -4.6 3.9
 Consumption expenditures 15.1 -8.6 -9.8 6.8
 Gross investment 27.7 -5.4 15.4 -5.2

 State and local -1.1 2.9 2.5 4.7
 Consumption expenditures 2.6 2.9 1.8 3.8
 Gross investment -14.5 2.9 5.3 8.3

(1.) Gross government investment consists of general government
and government enterprise expenditures for fixed assets; inventory
investment is included in government consumption expenditures.

NOTE.--See note to table 1 for an explanation of chained (1996)
dollar series. Chained (1996) dollar levels and residuals are shown
in NIPA table 3.8. Percent changes in major aggregates are shown
in NIPA table S.1.

Federal nondefense spending increased 3.9 percent after decreasing 4.6 percent. Consumption spending, especially for nondurable goods, was responsible for the upturn. A downturn in investment was accounted for by equipment and software.

Federal defense spending increased less than in the fourth quarter. Investment turned down, primarily reflecting a downturn in equipment and software. In contrast, consumption spending increased considerably more than in the fourth quarter; the acceleration was more than accounted for by a step-up in services other than compensation of employees.

State and local government spending increased 4.7 percent after increasing 2.5 percent. Consumption spending increased twice as much as in the fourth quarter, reflecting an upturn in compensation of employees. A pickup in investment spending was attributable to structures.

Prices

The price index for gross domestic purchases, which measures the prices paid for goods and services purchased by U.S. residents, increased 2.8 percent in the first quarter after increasing about 2.0 percent in each of the preceding three quarters (table 9 and chart 10). Prices of gross domestic purchases less food and energy increased 2.4 percent after increasing 1.6 percent. The acceleration reflected step-ups in the prices of PCE and Federal Government spending; in contrast, prices of private nonresidential fixed investment turned down.

[GRAPH OMITTED]

Table 9.--Percent Changes in Prices

[Annual rates; based on seasonally adjusted index numbers (1996=100)]

 2000 2001

 II III IV I

Gross domestic product 2.4 1.6 2.0 3.2

Less: Exports of goods and services 1.9 .7 .5 -.4
Plus: Imports of goods and services .2 3.8 .2 -2.7

Equals: Gross domestic purchases 2.1 2.0 1.9 2.8

Less: Change in private inventories ... ... ... ...

Equals: Final sales to domestic
 purchasers 2.1 2.0 1.9 2.8

 Personal consumption expenditures 2.1 1.8 1.9 3.2
 Durable goods -.6 -2.3 -1.1 -.7
 Nondurable goods 3.3 2.2 2.0 1.9
 Services 2.0 2.5 2.5 4.7
 Private fixed investment 1.9 2.0 1.1 .3
 Nonresidential 1.6 1.8 .1 -1.3
 Structures 3.7 5.0 5.4 6.7
 Equipment and software 1.0 .8 -1.6 -3.8
 Residential 2.6 2.7 4.4 5.7
 Government consumption expenditures
 and gross investment 2.7 2.9 2.8 3.9
 Federal .6 2.6 1.5 5.3
 National defense .8 2.9 1.4 4.3
 Nondefense .4 2.1 1.7 7.2
 State and local 3.8 3.1 3.5 3.2

Addenda:
 Gross domestic purchases:
 Food 2.3 3.5 1.8 4.0
 Energy 11.2 11.1 10.3 8.2
 Less food and energy 1.7 1.5 1.6 2.4
 Personal consumption expenditures:
 Food 2.3 3.7 1.6 4.0
 Energy goods and services(1) 13.0 8.6 8.9 10.8
 Less food and energy 1.4 1.1 1.6 2.6

(1) Consists of gasoline, fuel oil, and other energy goods and of
electricity and gas.

NOTE.--Percent changes in major aggregates are shown in NIPA table
8.1. Index numbers are shown in tables 7.1, 7.2, and 7.4.

The step-up in PCE prices reflected pickups in the prices of services and of food. Prices paid by the Federal Government increased 5.3 percent, reflecting a pay raise for Federal employees; excluding the pay raise, prices paid by the Federal Government increased 1.3 percent, a little less than in the fourth quarter.6 The downturn in the prices of private nonresidential fixed investment reflected equipment and software prices, mainly computer prices, which declined more than in the fourth quarter.

Revisions

The 0.7-percentage point downward revision to real GDP was larger than usual (table 10). Over the past 20 years, the average revision (without regard to sign) from the advance estimate to the preliminary estimate was 0.5 percentage point.

Table 10.--Revisions to Change in Real Gross Domestic
Product and Prices, First Quarter 2001

[Seasonally adjusted at annual rates]

 Percent change Preliminary
 from preceding estimate minus
 quarter advance estimate

 Billions
 Advance Prelimi- Percent- of
 estimate nary age chained
 estimate points (1996)
 dollars

Gross domestic product 2.0 1.3 -0.7 -15.4

Less: Exports -2.2 -2.7 -.5 -1.5
 Goods -3.7 -4.6 -.9 -1.9
 Services 1.8 2.3 .5 .3

Plus: Imports -10.4 -9.1 1.3 5.5
 Goods -11.7 -10.2 1.5 5.3
 Services -3.2 -2.8 .4 .2

Equals: Gross domestic
 purchases .6 .2 -.4 -9.1

Less: Change in private
 inventories ... ... ... -11.8
 Farm ... ... ... .3
 Nonfarm ... ... ... -12.0

Equals: Final sales to
 domestic purchasers 3.0 3.1 .1 2.1

 Personal consumption
 expenditures 3.1 2.9 -.2 -3.8
 Durable goods 11.9 12.2 .3 .8
 Nondurable goods 2.6 1.5 -1.1 -5.2
 Services 1.7 1.8 .1 .9

 Fixed investment 1.6 2.3 .7 2.9
 Nonresidential 1.1 2.1 1.0 3.6
 Structures 11.0 17.2 6.2 4.1
 Equipment and
 software -2.1 -2.6 -.5 -1.5
 Residential 3.3 2.9 -.4 -.4

 Government consumption
 expenditures and
 gross investment 4.0 4.7 .7 3.0
 Federal 5.7 4.9 -.8 -1.1
 National defense 4.9 5.4 .5 .5
 Nondefense 7.0 3.9 -3.1 -1.5
 State and local 3.1 4.7 1.6 4.0

Addenda:
 Final sales of domestic
 product 4.6 4.4 -.2 -4.2
 Gross domestic purchases
 price index 2.8 2.8 0 ...
 GDP price index 3.2 3.2 0 ...

NOTE.--The preliminary estimates for the first quarter of 2001
incorporate the following revised or additional major source data
that were not available when the advance estimates were prepared.

Personal consumption expenditures: Retail sales for February and
March (revised), consumers' share of new-car purchases for
March, average unit value for domestic new autos for March
(revised), and consumers' share of new-truck purchases for March.

Nonresidential fixed investment: Construction put-in-place for
January and February (revised) and March, manufacturers' shipments
of machinery and equipment for February and March (revised),
manufacturers' shipment of complete civilian aircraft for February
(revised) and March, and exports and imports of machinery and
equipment for February (revised) and March.

Residential fixed investment: Construction put-in-place for January
and February (revised) and March.

Change in private inventories: Manufacturing and trade inventories
for February (revised) and March.

Exports and imports of goods and services: Exports and imports of
goods for February (revised) and March.

Government consumption expenditures and gross investment: Monthly
Treasury Statement detailed data for March, Department of Defense
detailed financial reports for the first quarter, and State and local
government construction put-in-place for January and February
(revised) and March.

Wages and salaries: Employment, average hourly earnings, and average
weekly hours for February and March (revised).

GDP prices: Detailed merchandise export and import price indexes for
January through March (revised), unit-value index for petroleum
imports for February (revised) and March, and housing prices for the
first quarter.

The major contributors to the revision in the first quarter were change in private nonfarm inventories (-0.48 percentage point), PCE for nondurable goods (-0.22 percentage point), and imports of goods (-0.20 percentage point). The negative contributions of those components were partly offset by positive contributions from non-residential structures (0.19 percentage point) and State and local government spending (0.18 percentage point).

The downward revision to private nonfarm inventory investment was primarily to manufacturing inventories. It reflected the incorporation of newly available Census Bureau data on inventories for March and revised data for February.

The downward revision to PCE for nondurable goods was primarily to food and to clothing and shoes. It reflected the incorporation of revised Census Bureau data on retail sales for February and March.

The upward revision to imports of goods, notably to nonautomotive consumer goods and to industrial supplies and materials, mainly reflected the incorporation of newly available Census Bureau data on trade in goods for March.

The upward revisions to private nonresidential structures and to State and local government spending reflected newly available Census Bureau data on construction put in place for March and revised data for January and February.

Corporate Profits

Profits decreased again in the first quarter. The current-production measure decreased $21.3 billion (or 2.3 percent at a quarterly rate) after decreasing $55.6 billion (5.7 percent) in the fourth quarter (table 11).(7) In percentage terms, the back-to-back decreases represent the biggest two-quarter drop since mid-1992.

Table 11.--Corporate Profits

[Seasonally adjusted]

 Billions of dollars (annual rate)

 Level Change from preceding quarter

 2001 2000 2001

 I II III IV I

Profits from current
 production 893.4 27.3 6.7 -55.6 -21.3
 Domestic industries 739.4 21.9 -1.2 -72.8 -15.9
 Financial 186.4 -5.5 6.1 2.8 8.4
 Nonfinancial 553.0 27.3 -7.1 -75.7 -24.3
 Rest of the world 154.0 5.4 7.8 17.3 -5.4
 Receipts (inflows) 202.8 12.0 -3.9 5.0 -5.1
 Payments (outflows) 48.8 6.5 -11.7 -12.2 .2

 IVA -3.5 11.4 9.1 -4.0 5.0
 CCAdj 30.7 -5.9 -5.0 -.6 1.6
 Profits before tax 866.2 21.8 2.6 -51.0 -27.9
 Profits tax liability 259.0 5.7 -1.4 -22.9 -8.7
 Profits after tax 607.2 16.0 4.0 -28.0 -19.2

Cash flow from current
 production 998.2 35.3 20.1 -25.1 -6.3

Domestic industry profits:
 Corporate profits of
 domestic industries
 with IVA 708.7 27.7 3.9 -72.2 -17.5
 Financial 207.0 -3.8 7.4 3.4 8.1
 Nonfinancial 501.7 31.6 -3.6 -75.6 -25.6

 Dollars

Unit price, costs, and
 profits of
 nonfinancial
 corporations:
 Unit price 1.040 0.006 0.001 0.003 0.005
 Unit labor cost .683 .001 .002 .012 .010
 Unit nonlabor cost .253 .002 0 .007 -.001
 Unit profits from
 current production .104 .004 -0.003 -.014 -.005

 Percent change (quarterly rate)

 2000 2001

 II III IV I

Profits from current
 production 2.9 0.7 -5.7 -2.3
 Domestic industries 2.7 -.1 -8.8 -2.1
 Financial -3.2 3.6 1.6 4.7
 Nonfinancial 4.3 -1.1 -11.6 -4.2
 Rest of the world 4.2 5.8 12.1 -3.4
 Receipts (inflows) 6.2 -1.9 2.5 -2.5
 Payments (outflows) 10.0 -16.2 -20.1 .5

 IVA ... ... ... ...
 CCAdj ... ... ... ...
 Profits before tax 2.4 .3 -5.4 -3.1
 Profits tax liability 2.0 -.5 -7.9 -3.3
 Profits after tax 2.5 .6 -4.3 -3.1

Cash flow from current
 production 3.6 2.0 -2.4 -.6

Domestic industry profits:
 Corporate profits of
 domestic industries
 with IVA 3.6 .5 -9.0 -2.4
 Financial -2.0 4.0 1.7 4.1
 Nonfinancial 5.5 -.6 -12.5 -4.9

Unit price, costs, and
 profits of
 nonfinancial
 corporations:
 Unit price ... ... ... ...
 Unit labor cost ... ... ... ...
 Unit nonlabor cost ... ... ... ...
 Unit profits from
 current production ... ... ... ...

NOTE.--Levels of these and other profits series are shown
in NIPA tables 1.14, 1.16, 6.16C, and 7.15.

IVA Inventory valuation adjustment

CCAdj Capital consumption adjustment

First-quarter profits were reduced by a $7.1 billion adjustment (annual rate) for settlement payments made by tobacco companies; fourth-quarter profits had been reduced by a $14.2 billion adjustment. Excluding these adjustments, profits from current production decreased 3.1 percent (quarterly rate) in the first quarter after decreasing 4.9 percent in the fourth.

The first-quarter decrease in profits reflected drops in profits of domestic nonfinancial corporations and in profits from the rest of the world. Unit profits of domestic nonfinancial corporations fell, as unit labor costs surged again after a large increase in the fourth quarter. The real output of domestic nonfinancial corporations increased slightly after a small decrease--the first since early 1993.(8)

The drop in rest-of-world profits mainly reflected lower receipts from foreign affiliates of U.S. corporations. Payments of earnings by U.S. affiliates of foreign corporations increased slightly.(9)

In contrast, profits of domestic financial corporations increased for the third consecutive quarter.

Cash flow from current production, a profits-related measure of internally generated funds available for investment, decreased $6.3 billion after decreasing $25.1 billion.(10) The ratio of cash flow to nonresidential fixed investment, an indicator of the share of the current level of investment that could be financed by internally generated funds, decreased from 72.2 percent to 71.7 percent, its lowest value since the second quarter of 1982. During 1991-99, the ratio fluctuated between 74 percent and 94 percent; it averaged 84 percent.

Domestic industry profits and related measures.--Domestic industry profits decreased $17.5 billion after plunging $72.2 billion.(11) The first-quarter decrease appears to have been concentrated in manufacturing and in wholesale trade.

Profits before tax decreased somewhat more than profits from current production. The difference between the two measures mainly reflected an increase in the inventory valuation adjustment, but the capital consumption adjustment also contributed.(12)

Government Sector

The combined current surplus of the Federal Government and of State and local governments--the NIPA measure of net saving by government--decreased $20.4 billion, to $319.7 billion, in the first quarter after increasing $23.5 billion in the fourth (table 12).(13) The State and local government current surplus decreased in the first quarter after little change in the fourth, and the Federal Government current surplus increased less in the first quarter than in the fourth.

Table 12.--Government Sector Current Receipts and Expenditures

[Billions of dollars, seasonally adjusted at annual rates]

 Level Change from preceding quarter

 2001 2000 2001

 I I II III IV I

Current receipts 3,151.5 83.0 62.8 45.4 34.4 36.1
Current expenditures 2,831.8 5.1 49.6 29.9 10.9 56.5

 Current surplus or
 deficit (-) 319.7 77.9 13.2 15.5 23.5 -20.4

Social insurance funds 113.3 3.4 -2.5 7.6 7.2 -5.1
Other 206.4 74.6 15.6 7.9 16.4 -15.3

 Federal Government

 Current receipts 2,141.2 70.9 42.9 34.6 17.2 34.6

Personal tax and nontax
 receipts 1,083.1 39.8 25.6 27.3 27.5 24.7
Corporate profits tax
 accruals 222.6 13.4 4.8 -1.1 -19.1 -7.7
Indirect business tax
 and nontax
 accruals 109.6 2.9 2.1 0 .1 .6
Contributions for
 social insurance 725.9 14.9 10.3 8.4 8.8 16.9

 Current
 expenditures 1,861.8 -21.7 37.9 22.1 -6.4 32.2

Consumption
 expenditures 507.6 -8.3 20.3 -9.1 -.7 18.4
 National defense 334.4 -13.5 14.5 -6.1 2.8 12.0
 Nondefense 173.2 5.2 5.8 -3.0 -3.6 6.5
Transfer payments (net) 811.4 5.5 15.8 6.2 16.8 9.4
 To persons 805.3 16.1 15.0 3.9 4.8 26.7
 To the rest of the
 world 6.2 -10.6 .8 2.3 12.0 -17.2
Grants-in-aid to State
 and local
 governments 262.8 -3.8 5.9 10.3 0 11.6
Net interest paid 245.5 3.2 -4.7 -3.1 -2.3 -9.4
Subsidies less current
 surplus of
 government
 enterprises 34.6 -18.2 5 17.8 -20.0 2.2
 Subsidies 41.1 -16.9 .8 17.5 -19.3 1.8
 Of which:
 Agricultural
 subsidies 17.7 -16.8 .8 17.4 -19.4 1.4
 Less: Current surplus
 of government
 enterprises 6.5 1.3 .3 -.4 .7 -.3
Less: Wage accruals
 less
 disbursements 0 0 0 0 0 0

 Current surplus or
 deficit (-) 279.4 92.5 5.1 12.4 23.7 2.4

Social insurance funds 113.6 3.3 -2.5 7.5 7.2 -5.2
Other 165.8 89.3 7.6 4.8 16.5 7.6

 State and local
 governments

 Current receipts 1,273.1 8.3 25.8 21.1 17.1 13.2

Personal tax and nontax
 receipts 288.7 2.2 12.2 3.6 7.2 4.3
Corporate profits tax
 accruals 36.3 2.1 .9 -.3 -3.7 -1.2
Indirect business tax
 and nontax
 accruals 675.1 7.6 6.5 7.5 13.6 -1.7
Contributions for
 social insurance 10.2 .2 .2 .1 .1 .1
Federal grants-in-aid 262.8 -3.8 5.9 10.3 0 11.6

 Current
 expenditures 1,232.8 22.9 17.7 18.0 17.3 35.9

Consumption
 expenditures 954.6 20.1 13.8 13.9 12.7 16.7
Transfer payments to
 persons 278.9 3.1 4.0 4.0 4.8 4.5
Net interest paid -4.9 -.6 -.4 .2 -.3 -.2
Less: Dividends
 received by
 government .4 0 0 0 0 0
Subsidies less current
 surplus of
 government
 enterprises 4.6 .3 .2 -.1 .1 15.0
 Subsidies 15.7 0 0 0 0 15.2
 Less: Current surplus
 of government
 enterprises 11.1 -.3 -.2 .1 -.1 .2
Less: Wage accruals
 less
 disbursements 0 0 0 0 0 0

 Current surplus or
 deficit (-) 40.3 -14.6 8.1 3.1 -.1 -22.8

Social insurance funds -.4 .1 .1 0 0 0
Other 40.6 -14.7 8.1 3.0 -.1 -22.9

 Addendum:

Net lending or net
 borrowing (-)(1) 231.0 70.3 20.5 15.7 16.3 -13.5
 Federal government 267.8 92.7 2.6 13.6 17.2 10.1
 State and local
 government -36.8 -22.4 17.9 2.1 -.9 -23.6

(1.) "Net lending or borrowing" is conceptually similar to "net
financial investment" in the flow-of-funds accounts prepared by the
Board of Governors of the Federal Reserve System. The two measures
differ primarily because government net lending or borrowing is
estimated from data for transactions, whereas net financial investment
is estimated from data for financial assets. There are also small
conceptual differences, such as the classification of the Federal
Government's railroad retirement and veterans life insurance programs.

Federal

The Federal Government current surplus increased $2.4 billion, to $279.4 billion, in the first quarter after increasing $23.7 billion in the fourth. An upturn in current expenditures more than offset an acceleration in current receipts.

Current receipts.--Federal current receipts increased $34.6 billion in the first quarter after increasing $17.2 billion in the fourth. The acceleration was more than accounted for by a smaller decrease in corporate profits tax accruals and by an acceleration in contributions for social insurance. In contrast, personal tax and nontax receipts decelerated.

Corporate profits tax accruals decreased $7.5 billion after decreasing $19.1 billion. The smaller decrease reflected the less steep decline in domestic corporate profits before tax.

Contributions for social insurance increased $16.9 billion after increasing $8.8 billion. The acceleration primarily reflected an increase in the social security taxable wage base that boosted contributions by employers, employees, and the self-employed to the old-age, survivors, disability and health insurance trust funds.

Personal tax and nontax receipts increased $24.7 billion after increasing $27.5 billion. Income taxes increased $24.5 billion after increasing $27.3 billion.

Current expenditures.--Current expenditure increased $32.2 billion in the first quarter after decreasing $6.4 billion in the fourth. The turn around was accounted for by upturns in "subsidies less the current surplus of government enterprises" in consumption expenditures, and in grants-in-aid to State and local governments.

"Subsidies less current surplus of government enterprises" increased $2.2 billion after decreasing $20.0 billion. The upturn was mostly accounted for by agricultural subsidies, which increased $1.4 billion after decreasing $19.4 billion, reflecting the pattern of the special payments to farmers under the Agricultural Risk Protection Act of 2000.

Consumption expenditures increased $18.4 billion after decreasing $0.7 billion. The upturn was the result of a turnaround in nondefense consumption expenditures and an acceleration in defense consumption expenditures.

Nondefense consumption expenditures increased $6.5 billion after decreasing $3.6 billion. Nondurable goods increased $3.3 billion after decreasing $4.1 billion. The upturn largely reflected a decrease in sales from the Strategic Petroleum Reserve, which are treated as deductions from consumption expenditures; under the "Exchange 2000" program, the Strategic Petroleum Reserve released 30 million barrels of crude oil, with an estimated value of $3.9 billion (annual rate), to private business in the fourth quarter.(14) Nondefense services increased $3.2 billion after increasing $0.4 billion. Within services, compensation of employees increased $3.3 billion after decreasing $0.6 billion; compensation was boosted $2.4 billion by the January 2001 pay raise.

Defense consumption expenditures increased $12.0 billion after increasing $2.8 billion. The acceleration was more than accounted for by services, which increased $13.6 billion after increasing $1.7 billion. Within services, "other services" --which includes spending for research and development, for personnel support, for installation support, and for weapon support--increased $10.4 billion after increasing $1.6 billion. Also within services, compensation of employees increased $3.1 billion after decreasing $0.3 billion; compensation was boosted $3.6 billion by the January 2001 pay raise.

Grants-in-aid to State and local governments increased $11.6 billion after no change. Grants for medicaid, for education, for health and hospitals, and for unemployment insurance all turned up.

"Transfer payments (net)" increased $9.4 billion after increasing $16.8 billion. The deceleration was more than accounted for by transfer payments to the rest of the world, which decreased $17.2 billion after increasing $12.0 billion; these payments had been boosted in the fourth quarter by the annual payment of $2.8 billion ($11.2 billion at an annual rate) to Israel for economic support. In contrast, transfer payments to persons increased $26.7 billion after increasing $4.8 billion. The step-up mainly reflected a 3.5-percent cost-of-living adjustment in January that boosted benefits $16.3 billion for social security (old-age, survivors, disability, and health insurance), veterans pensions, supplemental security income, and other programs.

Net interest paid decreased $9.4 billion after decreasing $2.3 billion. Gross interest paid decreased $8.5 after decreasing $2.2, reflecting larger decreases in interest paid to persons and business and in interest paid to the rest of the world. In addition, gross interest received increased $0.9 billion after increasing $0.1 billion, reflecting an upturn in interest received from the rest of the world.

State and local

The State and local government current surplus decreased $22.8 billion, to $40.3 billion, in the first quarter after decreasing $0.1 billion in the fourth. Current expenditures accelerated, and current receipts decelerated.

Current receipts.--State and local government current receipts increased $13.2 billion in the first quarter after increasing $17.1 billion in the fourth. The deceleration was more than accounted for by a downturn in indirect business tax and nontax accruals and a deceleration in personal tax and nontax receipts. In contrast, Federal grants-in-aid turned up, and the decline in corporate profits tax accruals slowed.

Indirect business tax and nontax accruals decreased $1.7 billion after increasing $13.6 billion. The downturn reflected "out-of-court" settlement payments to the States by tobacco companies, which fell $7.1 (annual rate) after increasing $8.0 billion (annual rate). In contrast, sales taxes accelerated to a $3.3 billion increase from a $1.8 billion increase.

Personal tax and nontax receipts increased $4.3 billion after increasing $7.2 billion. The deceleration was mostly accounted for by a deceleration in personal income taxes, which increased $3.7 billion after increasing $6.5 billion, primarily reflecting an increase in refunds issued by Colorado for tax year 2000.

Corporate profits tax accruals decreased $1.2 billion after decreasing $3.7 billion, reflecting the smaller decrease in domestic corporate profits before tax.

Current expenditures.--Current expenditures increased $35.9 billion in the first quarter after increasing $17.3 billion in the fourth. The acceleration was accounted for by accelerations in "subsidies less current surplus of government enterprises" and in consumption expenditures.

"Subsidies less current surplus of government enterprises" increased $15.0 billion after increasing $0.1 billion. Subsidies increased $15.2 billion after no change; the increase was the result of electricity purchases of $3.8 billion ($15.2 billion annual rate) by the State of California.

Consumption expenditures increased $16.7 billion after increasing $12.7 billion. The acceleration was more than attributable to a step-up in services, which increased $6.1 billion after increasing $2.2 billion. Within services, compensation of employees increased $3.8 billion after decreasing $0.1 billion, mostly as a result of increased employment.

(1.) Quarterly estimates in the NIPA's are expressed at seasonally adjusted annual rates. Quarter-to-quarter dollar changes are the differences between the published estimates. Quarter- to-quarter percent changes are annualized and are calculated from unrounded data unless otherwise specified.

Real estimates are calculated using a chain-type Fisher formula with annual weights for all years and quarterly weights for all quarters; real estimates are expressed both as index numbers (1996=100) and as chained (1996) dollars. Price indexes (1996= 100) are also calculated using a chain-type Fisher formula.

(2.) Gross domestic purchases is calculated as the sum of personal consumption expenditures, gross private domestic investment, and government consumption expenditures and gross investment; thus, gross domestic purchase includes imports of goods and services, which are subtracted in the calculation of GDP, and does not include exports of goods and services, which are added in the calculation of GDP.

(3.) In the NIPA'S, consumer spending is shown as personal consumption expenditures, government spending is shown as government consumption expenditures and gross investment, and inventory investment is shown as change in private inventories.

(4.) The personal saving rate is measured as personal saving as a percentage of current-dollar disposable personal income. The national saving rate is measured as gross saving as a percentage of gross national product.

(5.) Using the ratio that includes all final sales of domestic businesses in the denominator implies that the production of services results in a demand for inventories that is similar to that generated in the production of goods and structures. In contrast, using the "goods and structures" ratio implies that the production of services does not generate demand for inventories. Both implications are extreme. Production of some services may require substantial inventories, while production of other services may not.

(6.) In the NIPA's, an increase in the rate of Federal employee compensation is treated as an increase in the price of employee services purchased by the Federal Government.

(7.) 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 in NIPA tables 1.9, 1.14, 1.16, and 6.16C (see "Selected NIPA Tables," which begins on page D-2 of this issue) as corporate profits with inventory valuation and capital consumption adjustments.

Percent changes in profits are shown at quarterly, not annual, rates.

(8.) Output is defined here as nonfinancial corporate gross product. It is a measure of the contribution, or value added, of nonfinancial corporations to the Nation's output and is measured as the sum of income generated by these businesses. Consequently, the fourth-quarter decrease in nonfinancial corporate gross product partly reflected the difference between the growth of gross domestic income (GDI), which is a measure of output calculated as the sum of incomes earned in production, and GDP, which is calculated as the sum of expenditures for final goods and services. GDI grew more slowly than GDP in the fourth quarter.

(9.) Profits from the rest of the world is calculated as (1) receipts by U.S. residents of earnings from their foreign affiliates plus dividends received by U.S. residents from unaffiliated foreign corporations minus (2) payments by U.S. affiliates of earnings to their 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.

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

(11.) Domestic industry profits are estimated as the sum of corporate profits before tax and the inventory valuation adjustment; they are shown in NIPA table 6.16C (on page D-26 of this issue). Estimates of the capital consumption adjustment do not exist at a detailed industry level; they are available only for total financial and total nonfinancial industries.

(12.) As prices change, companies that value inventory withdrawals at original acquisition (historical) costs may realize inventory profits or losses. Inventory profits--a capital-gains-like element in profits--result from an increase in inventory prices, and inventory losses--a capital-loss-like element in profits--result from a decrease in inventory, prices. In the NIPA's, inventory profits or losses are removed from business incomes by the inventory valuation adjustment (WA); a negative IVA removes inventory profits, and a positive IVA removes inventory losses.

The capital consumption adjustment converts depreciation valued at historical cost and based on service lives and depreciation patterns specified in the tax code to depreciation valued at current cost and based on empirical evidence on the prices of used equipment and structures in resale markets. For information on depreciation in the NIPA's, see Arnold J. Katz and Shelby W. Herman "Improved Estimates of Fixed Reproducible Tangible Wealth, 1929-95," SURVEY OF CURRENT BUSINESS 77 (May 1997):69-92.

(13.) Net saving equals gross saving less consumption of fixed capital (CFC); the estimates of gross saving, CFC, and net saving are shown in NIPA table 5.1. For NIPA estimates of government current receipts, current expenditures, and the current surplus or deficit for 1999 and 2000, see NIPA tables 3.1, 3.2, and 3.3 in this issue.

(14.) For more information, see page 10 in the April 2001 SURVEY.