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FOR WIRE TRANSMISSION: 8:30 A.M. EDT, THURSDAY, SEPTEMBER 30, 1999

BEA 99-28

Gross Domestic Product, 2nd quarter 1999 (final); Corporate Profits, 2nd quarter 1999 (revised)

This release is also available in Adobe Acrobat (PDF) format.

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 1.6 percent in the second quarter of 1999, according to revised estimates released by the Commerce Department's Bureau of Economic Analysis. In the first quarter, real GDP increased 4.3 percent. Real GDP increased $31.0 billion in the second quarter, following an increase of $81.9 billion in the first.

The GDP estimates released today are based on more complete source data than were available for the preliminary estimates issued last month. In the preliminary estimates, the increase in real GDP was 1.8 percent (see "Revisions" on page 3).

The major contributors to the increase in real GDP in the second quarter were: Personal consumption expenditures (PCE), private fixed investment, and exports. The contributions of these components were partially offset by the effects of an increase in imports and of a decrease in inventory investment.

Comprehensive Revision of the National Income and Product Accounts

In the next GDP news release, scheduled for October 28, 1999, the Bureau of Economic Analysis plans to release the initial results of its 11th comprehensive, or benchmark, revision of the national income and product accounts (NIPA's) along with the advance estimates for the third quarter of 1999. The August and September issues of the Survey of Current Business presented the first two in a series of articles on the comprehensive revision.

NOTE.--Quarterly estimates 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 annualized. "Real" estimates are in chained (1992) dollars. Price indexes are chain-type measures.

The deceleration in real GDP in the second quarter primarily reflected a deceleration in PCE, a larger decrease in inventory investment, and a downturn in government spending that more than offset an upturn in exports.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 1.9 percent in the second quarter, 0.2 percentage point less than the preliminary estimate; this index increased 1.2 percent in the first quarter. Excluding food and energy prices, which are normally more volatile than many other prices, the price index increased 1.2 percent in the second quarter, compared with an increase of 1.3 percent in the first.

Real personal consumption expenditures increased 4.8 percent in the second quarter, compared with an increase of 6.7 percent in the first. Real nonresidential fixed investment increased 10.8 percent, compared with an increase of 8.5 percent. Nonresidential structures decreased 1.0 percent, in contrast to an increase of 5.7 percent. Producers' durable equipment increased 15.3 percent, compared with an increase of 9.5 percent. Real residential fixed investment increased 7.1 percent, compared with an increase of 15.4 percent.

Real exports of goods and services increased 4.9 percent in the second quarter, in contrast to a decrease of 5.1 percent in the first. Real imports of goods and services increased 15.1 percent, compared with an increase of 13.5 percent.

Real federal government consumption expenditures and gross investment decreased 3.6 percent in the second quarter, compared with a decrease of 1.9 percent in the first. National defense decreased 3.5 percent, compared with a decrease of 6.6 percent. Nondefense decreased 3.8 percent, in contrast to an increase of 7.4 percent. Real state and local government consumption expenditures and gross investment decreased 1.1 percent, in contrast to an increase of 7.7 percent.

The real change in business inventories subtracted 1.41 percentage points from the second-quarter change in real GDP, after subtracting 0.27 percentage point from the first-quarter change. Businesses increased inventories $7.4 billion in the second quarter, following increases of $38.7 billion in the first quarter and $44.2 billion in the fourth.

Real final sales of domestic product -- GDP less change in business inventories -- increased 3.1 percent in the second quarter, compared with an increase of 4.6 percent in the first.

Gross domestic purchases

Real gross domestic purchases -- purchases by U.S. residents of goods and services wherever produced -- increased 2.9 percent in the second quarter, compared with an increase of 6.6 percent in the first.

Gross national product

Real gross national product -- the goods and services produced by the labor and property supplied by U.S. residents -- increased 1.6 percent in the second quarter, compared with an increase of 4.4 percent in the first. GNP includes, and GDP excludes, net receipts of factor income from the rest of the world.

Current-dollar GDP

Current-dollar GDP -- the market value of the nation's output of goods and services -- increased 3.0 percent, or $64.7 billion, in the second quarter. In the first quarter, current-dollar GDP increased 6.0 percent, or $127.5 billion.

Revisions

The final estimate of the second-quarter increase in real GDP is 0.2 percentage point, or $3.7 billion, lower than the preliminary estimate issued last month. The downward revision to the percentage change in real GDP primarily reflected a downward revision to nonfarm inventory investment ($4.4 billion) and an upward revision to imports of services ($2.3 billion) that more than offset an upward revision to personal consumption expenditures for services ($3.0 billion).

                                      Advance     Preliminary        Final
                                     (Percent change from preceding quarter)
                                             
Real GDP.............................    2.3          1.8             1.6
Current-dollar GDP...................    3.9          3.4             3.0
Gross domestic purchases price index..   2.1          2.1             1.9

Corporate Profits

Profits from current production (profits before tax with inventory valuation and capital consumption adjustments) decreased $9.5 billion in the second quarter, according to revised estimates. In the first quarter, profits increased $47.1 billion. Current-production cash flow (net cash flow with inventory valuation and capital consumption adjustments) -- the internal funds available to corporations for investment -- decreased $13.2 billion in the second quarter, in contrast to an increase of $34.7 billion in the first.

The revised estimate of second-quarter corporate profits from current production is $0.3 billion lower than the preliminary estimate issued last month. Domestic profits of financial corporations were revised down $4.7 billion. Domestic profits of nonfinancial corporations and the foreign component of profits (rest-of-the-world profits) were revised up $3.3 billion and $1.0 billion, respectively.

Domestic profits of financial corporations decreased $7.7 billion in the second quarter, in contrast to an increase of $13.4 billion in the first.

Domestic profits of nonfinancial corporations decreased $0.5 billion in the second quarter, in contrast to an increase of $29.0 billion in the first. In the second quarter, real gross corporate product increased, and profits per unit of real product decreased. The decrease in unit profits reflected a smaller increase in the prices corporations received than in the unit costs they incurred; both unit labor and nonlabor costs increased.

The foreign component of profits decreased $1.2 billion in the second quarter, in contrast to an increase of $4.6 billion in the first. 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. The second-quarter decrease was accounted for by a larger increase in payments than in receipts.

Profits before tax with inventory valuation adjustment is the best available measure of industry profits because estimates of the capital consumption adjustment by industry do not exist. According to this measure, domestic profits of both financial and nonfinancial corporations decreased. Profit decreases for nonfinancial corporations were widespread among major industry groups; the largest decreases occurred in the transportation and public utilities group and in nondurable goods manufacturing. Profits increased in durable goods manufacturing.

Profits before tax increased $15.4 billion in the second quarter, compared with an increase of $44.5 billion in the first. The before-tax measure of profits does not reflect, as does profits from current production, the capital consumption and inventory valuation adjustments. These adjustments convert depreciation and inventory withdrawals reported on an historical-cost basis to the replacement-cost measures used in the national income and product accounts. The capital consumption adjustment increased $4.1 billion in the second quarter (from $104.6 billion to $108.7 billion), compared with an increase of $4.4 billion in the first. The inventory valuation adjustment decreased $29.0 billion (from $11.6 billion to -$17.4 billion), compared with a decrease of $1.8 billion.

Profits tax liability increased $6.3 billion in the second quarter, compared with an increase of $15.1 billion in the first. Profits after tax increased $9.1 billion, compared with an increase of $29.4 billion. Dividends increased $4.1 billion, compared with an increase of $3.3 billion; undistributed profits increased $4.9 billion, compared with an increase of $26.2 billion.

BEA's major national, international, regional, and industry estimates; the Survey of Current Business; and BEA news releases are available without charge on BEA's Web site: <www.bea.doc.gov>

STAT-USA maintains an Internet site that contains BEA estimates, the Survey of Current Business, and BEA news releases. The information available through STAT-USA is often more detailed and more timely than that available from other sources. For information about STAT-USA, go to <www.stat-usa.gov>, or call (202) 482-1986. Subscriptions for single-user unlimited access to STAT-USA's Internet information are $50.00 for 3 months or $150.00 for 1 year.

Summary BEA estimates are available on recorded messages at the time of public release at the following telephone numbers:

(202) 606-5306 Gross domestic product
(202) 606-5303 Personal income and outlays
(202) 606-5362 U.S. international transactions

Most of BEA's estimates and analyses appear in the Survey of Current Business, BEA's monthly journal. The printed Survey of Current Business is available from the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402. First class mail: Annual subscription $120.00 domestic. Second class mail: Annual subscription $48.00 domestic, $60.00 foreign; single issue $17.25 domestic, $21.56 foreign.

Next release -- October 28, 1999, at 8:30 A.M. EDT for:
Comprehensive revision (1959 through second quarter 1999)
and advance estimate of GDP for the third quarter of 1999.

Full Release & Tables (PDF) (PDF)

GDP

Virginia H. Mannering

(202) 606-5304

Profits

Kenneth A. Petrick

(202) 606-9738

Technical Note

This technical note provides background information about the source data and estimating methods used to produce the estimates presented in the GDP news releases; the note also provides some perspective on the estimates. This month, in addition, it contains information on the upcoming comprehensive revision to the national income and product accounts.

Gross Domestic Product, Second Quarter 1999 (Final)

The "final" estimates of GDP for the second quarter of 1999 present essentially the same picture of economic activity as did the "preliminary" estimates issued a month ago.

Real GDP is now estimated to have increased 1.6 percent in the second quarter of 1999, 0.2 percentage point less than the preliminary estimate of 1.8 percent. Real GDP increased 4.3 percent in the first quarter. As in the preliminary estimate, GDP growth in the second quarter was largely accounted for by increases in consumer spending, in business fixed investment, and in exports. The increase in GDP was moderated by an increase in imports and a decrease in inventory investment. The slowdown in second-quarter GDP growth reflected a slowdown in consumer spending and in inventory investment and a downturn in government spending that more than offset an upturn in exports.

The price index for gross domestic purchases is now estimated to have increased 1.9 percent in the second quarter, 0.2 percentage less than the preliminary estimate. Gross domestic purchases prices increased 1.2 percent in the first quarter. Excluding food and energy prices, which are normally more volatile than many other prices, the price index increased 1.2 percent, 0.2 percentage point less than the preliminary estimate, after increasing 1.3 percent in the first.

Corporate profits from current production decreased 1.1 percent (at a quarterly rate) in the second quarter, the same decrease as the preliminary estimate. Current-production profits increased 5.7 percent in the first quarter.

The revision to real GDP growth of a negative 0.2-percentage point in the second quarter is smaller than the 0.3-percentage point average revision--without regard to sign--between the preliminary and final estimates over the past 20 years. The revision to real GDP mainly reflected downward revisions accounted for by the source data underlying inventory investment and imports that more than offset an upward revision to consumer spending for services.

Comprehensive NIPA Revision Scheduled for October 28

On October 28, BEA plans to release the initial results of a comprehensive, or benchmark, revision of the national income and product accounts, along with the release of the advance estimates for the third quarter of 1999. The revision will incorporate improvements that reflect changes to definitions and classifications, to source data and estimating methodologies, and to tables that present the accounts, as summarized below.

Definitional and classificational improvements

Business and government purchases of software, as well as own-account production of software, will be recognized as investment. This improvement will raise the level and rate of growth of GDP.
The treatment of government employee retirement plans will change to make it more similar to the treatment of private pension plans. This improvement will result in a shift of the savings associated with government employee retirement plans from the government to the personal sector; national saving will not be affected.
The accounting convention used to measure the corporate profits of private noninsured pension plans will be changed, eliminating a large negative value that is included in the profits estimate of insurance carriers. This improvement, which will also result in an offsetting decrease in net interest, will not affect national income, personal saving, or business saving.
Improvements will be made to the measures of national saving, the government current surplus or deficit, and personal saving by classifying certain transactions into a new NIPA category, "capital transfers." These transactions, which mainly represent transfers of existing assets and do not affect the level of disposable income in the current period, will include federal government investment grants to state and local governments, and estate and gift taxes.

New and redesigned tables

New summary tables will highlight the percent changes in real GDP and its major components and the component contributions to the percent changes; new series on computers and their contribution to GDP growth will be added to several tables.
New tables on contributions to percent change in real personal consumption expenditures, private fixed investment, exports and imports, and government consumption and investment will supplement the current table on contributions by these components to the percent change in real gross domestic product (GDP) by providing additional detail.
Other new or redesigned tables include (1) a table that integrates the estimates of investment flows and the stocks of produced assets, (2) a table that combines motor vehicle output, and (3) a new presentation of government expenditures by function.

Statistical and methodological changes

Estimates of major expenditure components of GDP will be improved by the incorporation of BEA's benchmark 1992 input-output (I-O) accounts and preliminary information from the Census Bureau's 1997 Economic Censuses. The I-O estimates are based on more detailed and comprehensive information from the 1992 Economic Censuses.
Adjustments that convert business tax-return data to the concepts underlying GDP will be improved, including the adjustments for foreign-source income of U.S. corporations, amortization of intangible assets, and interest income of captive finance companies.
Newly available price indexes from the Bureau of Labor Statistics (BLS) that reflect recent improvements in the consumer price indexes (CPI's) will be incorporated into the estimates of real personal consumption expenditures (PCE) beginning with 1978. The improved CPI's, which increase less than the previously calculated indexes, will result in upward revisions to the rate of growth of real PCE and GDP for 1978-95; , the improved CPI's are currently used in the NIPA's for deflation of PCE categories beginning with 1995.
Improved estimates of the real value of unpriced bank services will be incorporated, using an output index published by BLS that is a weighted average of various measures of bank transactions and volume of services, such as checks cleared and ATM transactions. Currently, the estimates are based on hours worked by bank employees. Introduction of the new measure will result in an upward revision to the rate of growth of real bank services, affecting PCE and several other components of GDP.
The reference year for calculating quantity and price indexes and for chained-dollar estimates will be shifted from 1992 to 1996.

Additional material on the second-quarter GDP estimate will become available in the next several days; much of it will be posted to BEA's web site www.bea.doc.gov. In a few weeks, the estimates will be published in BEA's monthly journal, the Survey of Current Business, which also is posted on the web site. The Survey also will provide a more detailed analysis of the estimates ("The Business Situation"). For the comprehensive revision, an article in the October issue of the Survey of Current Business will discuss the methodological and statistical changes; articles in the August and September issues discussed the definitional and classificational changes and the new and redesigned tables, respectively.

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

Brent R. Moulton
Associate Director
National Income, Expenditures, and Wealth Accounts
202-606-9606

September 30, 1999