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 September 24; these notes also provide some perspective on the estimates. Additional material will become available in the days and weeks ahead; much of it will be posted on BEA's web site. In mid-October, the estimates will be published in BEA's journal, the Survey of Current Business, along with a more detailed analysis of the estimates ("The Business Situation").

Revised GDP, Corporate Profits, and GNP

Real GDP: Real GDP is now estimated to have increased 1.8 percent in the second quarter of 1998, 0.2 percentage point more than the preliminary estimate of 1.6 percent. Real GDP increased 5.5 percent in the first quarter.

As in the preliminary and advance estimates, the final estimate for the second quarter shows that real GDP growth decelerated sharply and that the deceleration was more than accounted for by a downturn in inventory investment and by a slowdown in business investment in equipment.

Also as in the preliminary and advance estimates, the final estimate of the price index for gross domestic purchases is estimated to have increased 0.4 percent.

Corporate Profits: The final estimate of profits from current production is $0.9 billion higher than that reported in last month's preliminary estimate. The revision was more than accounted for by a $5.2 billion upward revision to nonfinancial profits that more than offset a downward revision to financial profits and an upward revision in profits paid to foreigners; profits received from abroad by U.S. companies was little changed.

According to the final estimate, profits from current production decreased 1.0 percent (at a quarterly rate) in the second quarter, after increasing 1.0 percent in the first. Compared with current-production profits in the second quarter of 1997, profits in the second quarter of 1998 increased 0.6 percent. The current-production measure differs from profits as they are usually reported in corporate financial statements. First, the current-production measure excludes non-operating items, such as special charges and capital gains net of losses. Second, the current-production measure is based on replacement-cost estimates of inventory withdrawals and depreciation rather than on historical-cost values.

Gross national product: Growth in real gross national product (GNP) in the second quarter was revised to 1.7 percent from 1.6 percent in the preliminary estimate; in the first quarter, real GNP had grown 5.8 percent. GNP equals GDP plus incomes, mainly profits and other investment income, earned abroad by U.S. residents less similar incomes earned by foreign residents.

Sources of Revision in Real GDP

The 0.2-percentage point upward revision to second-quarter real GDP growth is about the same as the 0.3-percentage point average revision--without regard to sign--between the preliminary and final estimates over the past 20 years. (See the summary of revisions to real GDP estimates below.)

Today's revision to real GDP reflects relatively small revisions to the source data underlying a number of GDP components, including upward revisions to consumer spending on goods and services, net exports, and business investment for equipment that more than offset a downward revision to inventory investment.

The revisions to consumer spending mainly reflected revised Bureau of the Census data on retail sales and newly available trade source data on services; the revision to exports and imports reflect BEA and Census revisions; revisions to business investment for equipment and inventories mainly reflect revised Bureau of the Census data on shipments of capital goods and on inventories.

Summary of revisions to real GDP estimates, 1978-97 (percent changes at annual
rate)
____________________________________________________________________________________
                                                                Range
                                    Average         ________________________________
Quarterly estimates                 without         Two-thirds         Nine-tenths
      compared                      regard              of                 of
                                    to sign         revisions           revisions
____________________________________________________________________________________
                                             
                                 Current-dollar GDP
                                 ___________________________________________________

Advance to preliminary..........       0.6         -0.5 to 0.8        -1.1 to 1.4
Advance to final................        .7          -.6 to 1.0        -1.0 to 1.6
Preliminary to final............        .3          -.3 to  .4         -.6 to  .7 

                                 Real GDP
                                 ___________________________________________________

Advance to preliminary...........       0.5        -0.5 to 0.7        -0.9 to 1.4
Advance to final.................        .6         -.6 to  .9        -1.0 to 1.3
Preliminary to final.............        .3         -.4 to  .4         -.5 to  .7
____________________________________________________________________________________
                                
     


                                              J. Steven Landefeld
                                                         Director
                                      Bureau of Economic Analysis
September 24, 1998                                   202-606-9600