Technical Notes

These technical notes provide background information about the source data and estimating methods used to produce the estimates presented in the GDP news release of October 30; these notes also provide some perspective on the estimates. Additional material will become available in the next several days; much of it will be posted to BEA's web site <http://www.bea.gov>. In a few weeks, 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 estimates ("The Business Situation").

Real GDP: Based on source data available at this time, BEA estimates that real GDP increased 3.3 percent (annual rate) in the third quarter of 1998 after increasing 1.8 percent in the second quarter.

The 3.3-percent GDP growth in the third quarter was accounted for by consumer purchases of services (2.2 percentage points), and by inventory investment, primarily in motor vehicles (1.0 percentage point). The increase in GDP was moderated by a decrease in exports (-0.3 percentage point).

The step-up in GDP growth was more than accounted for by inventory investment. Final sales of domestic product--GDP less change in business inventories--increased 2.3 percent in the third quarter after increasing 4.6 percent in the second quarter. Net exports reduced growth in both quarters; gross domestic purchases--GDP less net exports--increased 4.0 percent in the third quarter after increasing 3.9 percent in the second quarter.

Final sales to domestic purchasers--the sum of consumer and government spending and nonresidential and residential fixed investment--increased 3.0 percent in the third quarter after increasing 6.7 percent in the second quarter. The sharp slowdown was due to consumer spending for goods and nonresidential fixed investment.

Motor vehicle output, which is reflected in both the final sales and inventory investment components of GDP decreased 6.0 percent in the third quarter after decreasing 11.2 percent in the second quarter. The declines in both quarters reflected the effects of the strike at a motor vehicle manufacturer in June and July. GDP excluding motor vehicle output increased 3.6 percent in the third quarter after increasing 2.3 percent in the second quarter.

Purchases of computers continued to contribute to GDP growth in both the second and the third quarters. GDP less computer purchases increased 2.6 percent in the third quarter after increasing 1.2 percent in the second quarter.

Special factor: The composition of GDP, but not total GDP, was affected by the privatization in late July of the United States Enrichment Corporation by the Federal Government. (The USEC performed commercial nuclear enrichment activities for the Department of Energy.) Proceeds of the sale totaled $3.1 billion (current dollars) of which $1.5 billion is treated as a sale of financial assets and, as a consequence, excluded from GDP. The remaining $1.6 billion ($6.4 billion at an annual rate) was the market value of machinery and equipment and uranium inventories. These amounts were deducted from government consumption expenditures (inventories) and gross investment (machinery and equipment) and added to the change in business inventories and to gross private domestic fixed investment, respectively.

Prices: The chain-type price index for gross domestic purchases increased 0.5 percent in the third quarter after increasing 0.4 percent in the second. Excluding food and energy prices, which are normally more volatile than many other prices, the price index increased 0.6 percent, after increasing 0.7 percent in the second quarter.

Disposition of personal income: Disposable personal income (DPI), measured in current dollars, increased 3.6 percent in the third quarter, after increasing 3.5 percent in the second. Personal saving--DPI less personal outlays--was $5.9 billion in the third quarter, compared with $25.6 billion in the second. The saving rate--saving as a percentage of disposable personal income--decreased from 0.4 percent in the second quarter to 0.1 percent in the third. (The third-quarter rate is the lowest since the quarterly estimates were first prepared in 1946.)

Source data for the advance estimate

The advance estimate for the third 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 equipment other than aircraft, motor vehicle sales and inventories, Federal Government spending, 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. o For shipments of commercial aircraft, a small increase was assumed for September, following a large decline in August. The September increase was based on trade source information for September. o For exports of goods, excluding gold, a sizeable increase was assumed for September, primarily reflecting strong exports of commercial aircraft based on trade source information on exports of commercial aircraft. For imports of goods, excluding gold, a smaller increase than August was assumed based on past trends. o For non-motor-vehicle inventory investment, a smaller increase was assumed for September than for August. The September assumption in large part reflects a smaller increase in aircraft manufacturers' inventories based on trade source information on strong shipments and exports for September.

Robert P. Parker
Chief Statistician
Bureau of Economic Analysis
202-606-9607

October 30, 1998

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

FOR THE THIRD 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 September 1998 are shown in the last column of the table. For most series shown, the data for August 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                               
 
                                                         Apr.       May.       Jun.        Jul.       Aug.      Sep.*
 Private fixed investment:

   Nonresidential structures:
     Buildings: 
1         Value of new nonresidential 
          construction put in place........             169.4        166.3     169.6      165.2      164.3      164.6
     
  Producers' durable equipment:
2  Manufacturers' shipments of
     complete aircraft.....................              41.0         43.1      44.4       52.4       42.0       45.8
                                                                                               
  Residential structures:
    Value of new residential
      construction put in place:
3      1-unit structures......................          182.1        181.4     185.0      188.2      188.4      190.7
       
4     2-or-more-unit structures..........                24.8         22.9      23.0       23.5       22.3       22.5
                                                                                   
  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.....                36.6         23.9     44.3       20.4       35.2        26.9
                                                                                               
 Net exports:

  Exports of goods:
6   U.S. exports of goods, 
      balance-of-payments basis........                 664.0        656.6    657.2      645.9      644.4       668.7
                                                                                               
6a        Excluding gold.......................         660.5        652.2    652.4      643.2      637.8       662.1
                                                                                               
                                                                                                              
   Imports of goods:
7  U.S. imports of goods,
          balance-of-payments basis.......              920.0        927.6    903.6      898.3      922.8       928.3
                                                                                               
7a        Excluding gold......................          914.8        922.0    897.9      893.1      913.6       920.9
                                                                                               

8   Net exports of goods....................           -256.0       -271.0   -246.4     -252.4     -278.4      -259.6
                                                                                               
8a        Excluding gold.......................        -254.3       -269.8   -245.5     -249.9     -275.8      -258.8
                                                                                               
 Government:

  State and local:
   Structures:
9      Value of new construction put
               in place.....................            132.3       126.0    132.9      131.6      133.9       132.7