Technical Notes

These technical notes provide background information about the data sources and estimating
methods used to produce the estimates presented in the GDP news release of July 31, which
presents the results of a regular annual revision of the national income and product accounts
(NIPA's) and the advance estimates of GDP for the second quarter of 1998.  Additional material
will become available in the days and weeks ahead; much of it will be posted to BEA's web site <http://www.bea.gov>.
In mid-August, the estimates will be published in BEA's journal, the
Survey of Current Business.  The Survey also will provide a more detailed analysis of the second-
quarter 1998 estimates ("The Business Situation") and a special article on the annual revision.


         Advance Estimates for the Second-quarter of 1998


Real GDP:  Based on data available at this time, BEA estimates that real GDP increased 1.4
percent (annual rate) in the second quarter of 1998, after increasing 5.5 percent (revised up from
5.4 percent) in the first quarter.

The sharp slowdown in GDP growth was more than accounted for by a sharp downturn in
inventory investment, a larger decrease in exports, and slowdowns in business purchases of
producers' durable equipment and consumer purchases of goods.    The slowdown was
moderated by an upturn in national defense spending, an acceleration in consumer spending for
services, and a smaller increase in imports.  

The 1.4- percent GDP growth in the second quarter was more than accounted for by consumer
spending (3.9 percentage points) , business spending on producers' durable equipment (1.3
percentage points), spending by Federal and State and local governments (0.6 percentage point) ,
and residential construction (0.5 percentage point).  These increases were moderated by a
decrease in inventory investment, which reduced growth by 2.3 percentage points, and by a
decrease in exports, which reduced growth by 1 percentage point.

The strike at a motor vehicle manufacturer in June reduced GDP growth by from one-half to 1 percentage 
point in the second quarter; the impact of the strike is reflected largely in inventory investment,
exports, and imports.

Purchases of computers continued to contribute to the growth of GDP.  Real computer purchases
increased 45.0 percent in second quarter, after increasing 68.3 percent in the first.  GDP less
computer purchases increased 1.0 percent in the second quarter, after increasing 5.0 percent in the
first.  (For these calculations, purchases excludes change in inventories and includes some parts.)
 
Prices:  The price index for gross domestic purchases increased 0.4 percent in the second quarter,
after decreasing 0.2 percent (revised down from an increase of 0.1 percent) in the first.  Excluding
food and energy prices, which are more volatile than most other prices, the index increased 0.7
percent in the second quarter, the same increase as in the first (revised down from an increase of
1.1 percent).

Disposition of personal income:  Disposable personal income (DPI) increased 3.9 percent in the
second quarter, after increasing  4.0 percent in the first.  Personal saving--DPI  less personal
outlays--was $35.3 billion in the second quarter, compared with $73.0 billion in the first. 

Personal saving:   The saving rate--saving as a percentage of disposable personal income
decreased from 1.2 percent in the first quarter (revised down from 3.6 percent) to 0.6 percent in
the second.  The lower rate of personal saving, indicated by the downward revision to the first-quarter 
rate, primarily reflects the change incorporated in this year's annual revision that redefined
dividend payments to exclude those that reflect identifiable capital gains.  As announced in last
month's "Technical Note," NIPA estimates of these payments have been revised to exclude
capital gains distributions of regulated investment companies (i.e., mutual funds).  The redefinition
resulted in a reduction in dividends and an offsetting increase in undistributed corporate profits;
GDP and national income were not affected.  The reduction in dividends also resulted in a
reduction in personal income and in personal saving; however, national saving and private saving
were not affected, because the reduction in personal saving was offset by an increase in business
saving, which includes undistributed corporate profits.  (See section on revisions below for the
impact on earlier periods.)   

Source Data for the Advance Estimate

The advance estimate for the second quarter is based on preliminary and incomplete source data. 
Three months of source data are available for consumer spending on goods; investment in
producers' durable goods other than aircraft; motor vehicle sales and inventories; and consumer,
producer, and international prices. Only two months of data are available for most other key data
sources; BEA's assumptions for the third month are shown in table A.

     For nonmotor vehicle inventory investment, a larger increase was assumed for June than
     for the relatively small increase for May.  The larger June increase reflects an assumption
     of a small increase in retail trade inventories, which had fallen for May, based on nonmotor
     vehicle retail sales that were weak for June.  The June increase also reflects an assumption
     of a larger increase in aircraft manufacturers' inventories, based on preliminary Bureau of
     the Census tabulations.  Wholesale trade inventories for June were assumed to increase
     slighty more than for May, reflecting continued strength in imports of goods.

     For exports of goods, excluding gold, a small increase was assumed for June, largely
     reflecting increases in agricultural products and in commercial aircraft, products for which
     some information is available for June.  Imports of goods, excluding gold, was assumed to
     decrease, largely reflecting the expected impact of the motor vehicle strike on imports of
     motor vehicles and parts from Canada and Mexico.

                  Annual Revision of the NIPA's


As previously noted, the NIPA estimates released today also present the results a regular annual
revision covering the estimates from the first quarter of 1995 through the first quarter of 1998. 
(For the above-noted redefinition relating to capital gains distributions of regulated investment
companies, the revisions were carried back to 1982.)  The text of today's news release includes a
overview of the impact of the revision.  The highlights of the revision are as follows:

     Growth in real GDP was revised up.  From 1994:IV to 1998:I, the average quarterly
     growth was revised up from 3.1 percent to 3.4 percent (annual rate).   In the revised
     estimates, personal consumption expenditures (PCE) for goods, state and local
     government spending, nonresidential structures, and exports of goods and services were
     stronger; imports of goods and services were weaker, and federal nondefense spending
     decreased less.  Change in business inventories (CBI) was weaker, and federal national
     defense spending decreased more.  

     The increase in GDP price indexes was revised down.  The average quarterly increase
     from 1994:IV to 1998:I in the price index for gross domestic purchases was revised down
     from 1.8 percent to 1.5 percent.  The downward revision primarily reflected lower prices
     for PCE goods, for government spending, and for residential structures. The downward
     revision reflected several methodological changes, including the incorporation of
     geometric-mean-type consumer price indexes for deflation of most components of PCE. 

     The personal saving rate was revised down. The personal saving rate was revised down
     from  4.8 percent to 3.4 percent for 1995, down from 4.3 percent to 2.9 percent for 1996,
     and down from 3.9 percent to 2.1 percent for 1997.   These revisions primarily reflect the
     downward revision to personal dividend income, which as noted above, was due to the
     redefinition to exclude payments that reflect identifiable capital gains distributions.  The
     revised series reinforces the downward trend in the personal saving rate over the past
     decade, a trend that is also shown by an alternative measure of the personal saving rate
     prepared by the Federal Reserve Board as part of the Flow of Funds Accounts.  

     The gross (national) saving rate was revised little.  Because the redefinition of dividends
     (noted above) also resulted in an offsetting increase in business saving (undistributed
     corporate profits), national saving was not affected by the redefinition.  Reflecting other
     sources, revisions to national  saving were small. The national saving rate was revised up
     from 16.0 percent to 16.3 percent, unrevised at 16.6 percent in 1996, and up from 17.3
     percent to 17.4 percent in 1997. 

     Corporate profits from current production was revised up.  The capital consumption
     adjustment, which converts depreciation reported by business to the measure used in the
     NIPA's, accounted for about one-third of the revision for 1995, about two-thirds of the
     revision for 1996, and about one-half of the revision for 1997.  Profits before tax was also
     revised up for all 3 years. 

     The statistical discrepancy, current-dollar GDP less current-dollar gross domestic income
     (GDI), was smaller (in absolute value).  The discrepancy as a percentage of GDP was
     unrevised at -0.4 percent for 1995, revised from -0.8 percent to -0.4 percent for 1996, and
     revised from -1.1 percent to -0.7 percent for 1997.  Although these revisions are primarily
     accounted for by upward revisions to GDP, they largely reflect the availability of new or
     revised source data.  Most of the research necessary to address problems in estimates of
     gross domestic income (GDI)--e.g., the inclusion of capitals gains in the source data on
     wages and salaries or problems in separating domestic from foreign source income in the
     tax return tabulations of corporate profits--are longer term projects whose impact will be
     reflected in subsequent annual and benchmark revisions.  BEA continues to find the
     estimates of GDP to be more accurate than those of GDI because of the reliability and
     timeliness of the source data used in their construction. 
                                                               
                                               Robert P. Parker
                                               Chief Statistician
                                      Bureau of Economic Analysis
                                              202-606-9607
                                               July 31, 1998
                                

   Table A.--KEY ASSUMPTIONS FOR THE ADVANCE ESTIMATES OF GDP
                  FOR THE SECOND QUARTER OF 1998


For many of the key series used to prepare the advance estimate of GDP, including sales of retail
stores, unit automobile and truck sales and inventories, manufacturers' shipments of nondefense
capital goods (other than aircraft), federal defense spending, and consumer and producer price indexes,
actual data are available for all months of the quarter.

For the key series shown in this table, actual data for the third month of the quarter usually are not
available in time for inclusion in the advance GDP estimate.   BEA makes assumptions for the source
data that are not yet available; assumptions for June 1998 are shown in the last column of the table. 
For most series shown, the data for May are preliminary and subject to further revision.  Occasionally,
the data for earlier months are also subject to revision.  


All series shown in the table are in billions of dollars, seasonally adjusted at annual rates, and are
published by the Bureau of the Census. 
                                                           
                                                                                     1998
                                                         Jan.       Feb.       Mar.        Apr.      May       Jun.*
 Private fixed investment:

   Nonresidential structures:
     Buildings: 
1         Value of new nonresidential 
          construction put in place........             167.6      167.0      165.4       168.1     165.3      167.8
                                                                                   
  Producers' durable equipment:
2  Manufacturers' shipments of
     complete aircraft.....................              59.2       50.3       34.8        38.7      43.8       43.6
                                                                                               
  Residential structures:
    Value of new residential
      construction put in place:
3      1-unit structures......................          172.1      175.2      178.8       181.3     180.5      181.8
                                                                                   
4     2-or-more-unit structures..........                25.1       25.4       24.8        24.9      23.2       24.0
                    
  Change in business inventories, 
    nonfarm:

5  Change in inventories for
      manufacturing and trade (except
       nonmerchant wholesalers) for
      industries other than motor 
     vehicles and equipment in trade.....                98.3       86.1       47.5        36.6      17.7       54.3
                                               
 Net exports:

  Exports of goods:
6   U.S. exports of goods, 
      balance-of-payments basis........                 694.8       676.2     686.6       664.0     652.3      655.7
                                                                                               
6a        Excluding gold.......................         687.6       672.4     681.7       660.5     647.9      650.6
                                                                                               

   Imports of goods:
7  U.S. imports of goods,
          balance-of-payments basis.......              899.7       893.6     932.7       920.0     925.9      922.4
                                                                                               
7a        Excluding gold.......................         892.0       889.2     924.8       914.8     920.2      917.1
                                                                                                                                  

8   Net exports of goods....................           -204.9      -217.4    -246.1      -256.0    -273.6     -266.7
                                                                                               
8a        Excluding gold.......................        -204.4      -216.8    -243.1      -254.3    -272.3     -266.5
                                                                                               
 Government:

  State and local:
   Structures:
9      Value of new construction put
               in place.........................        132.7      132.2      130.9       131.9     126.9      133.7