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EMBARGOED UNTIL RELEASE AT 8:30 A.M. EDT, THURSDAY, JUNE 26, 2008
Gross Domestic Product and Corporate Profits, First Quarter 2008 (final)
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 1.0 percent in the first quarter of 2008 (that is, from the fourth quarter to the first quarter), according to final estimates released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 0.6 percent. 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 0.9 percent (see "Revisions" on page 3). The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE) for services, exports of goods and services, and federal government spending that were partly offset by negative contributions from residential fixed investment and PCE for durable goods. BOX Annual Revision of the National Income and Product Accounts The annual revision of the national income and product accounts, covering the first quarter of 2005 through the first quarter of 2008, will be released along with the "advance" estimate of GDP for the second quarter of 2008 on July 31. An article describing the revision will appear in the August 2008 issue of the Survey of Current Business. For more information, see the Technical Note. FOOTNOTE.--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 are annualized. "Real" estimates are in chained (2000) dollars. Price indexes are chain-type measures. This news release is available on BEA's Web site along with the Technical Note and Highlights related to this release. The small acceleration in real GDP primarily reflected an upturn in inventory investment that was partly offset by a deceleration in PCE. Final sales of computers contributed 0.09 percentage point to the first-quarter growth in real GDP after contributing 0.16 percentage point to the fourth-quarter growth. Motor vehicle output subtracted 0.48 percentage point from the first-quarter growth in real GDP after subtracting 0.86 percentage point from the fourth-quarter growth. The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 3.6 percent in the first quarter, 0.1 percentage point more than the preliminary estimate; this index increased 3.7 percent in the fourth quarter. Excluding food and energy prices, the price index for gross domestic purchases increased 2.3 percent in the first quarter, the same as in the fourth. About 0.3 percentage point of the first-quarter increase in the index was accounted for by the pay raise for federal civilian and military personnel, which is treated as an increase in the prices of employee services purchased by the federal government. Real personal consumption expenditures increased 1.1 percent in the first quarter, compared with an increase of 2.3 percent in the fourth. Real nonresidential fixed investment increased 0.6 percent, compared with an increase of 6.0 percent. Nonresidential structures increased 1.2 percent, compared with an increase of 12.4 percent. Equipment and software increased 0.2 percent, compared with an increase of 3.1 percent. Real residential fixed investment decreased 24.6 percent, compared with a decrease of 25.2 percent. Real exports of goods and services increased 5.4 percent in the first quarter, compared with an increase of 6.5 percent in the fourth. Real imports of goods and services decreased 0.7 percent, compared with a decrease of 1.4 percent. Real federal government consumption expenditures and gross investment increased 4.3 percent in the first quarter, compared with an increase of 0.5 percent in the fourth. National defense increased 5.6 percent, in contrast to a decrease of 0.5 percent. Nondefense increased 1.7 percent, compared with an increase of 2.8 percent. Real state and local government consumption expenditures and gross investment increased 0.8 percent, compared with an increase of 2.8 percent. The real change in private inventories added 0.02 percentage point to the first-quarter change in real GDP, after subtracting 1.79 percentage points from the fourth-quarter change. Private businesses decreased inventories $19.6 billion in the first quarter, following a decrease of $18.3 billion in the fourth quarter and an increase of $30.6 billion in the third. Real final sales of domestic product -- GDP less change in private inventories -- increased 0.9 percent in the first quarter, compared with an increase of 2.4 percent in the fourth. Gross domestic purchases Real gross domestic purchases -- purchases by U.S. residents of goods and services wherever produced -- increased 0.2 percent in the first quarter, in contrast to a decrease of 0.4 percent in the fourth. Gross national product Real gross national product -- the goods and services produced by the labor and property supplied by U.S. residents -- increased 0.2 percent in the first quarter, compared with an increase of 1.9 percent in the fourth. GNP includes, and GDP excludes, net receipts of income from the rest of the world, which decreased $22.7 billion in the first quarter after increasing $37.6 billion in the fourth; in the first quarter, receipts decreased $58.5 billion, and payments decreased $35.8 billion. Current-dollar GDP Current-dollar GDP -- the market value of the nation's output of goods and services -- increased 3.7 percent, or $126.9 billion, in the first quarter to a level of $14,201.1 billion. In the fourth quarter, current-dollar GDP increased 3.0 percent, or $103.7 billion. Revisions The final estimate of the first-quarter increase in real GDP is 0.1 percentage point, or $1.7 billion, higher than the preliminary estimate issued last month. The small upward revision to the percent change in real GDP primarily reflected upward revisions to exports, to personal consumption expenditures, and to equipment and software that were largely offset by an upward revision to imports and a downward revision to private nonfarm inventory investment. Advance Preliminary Final (Percent change from preceding quarter) Real GDP.............................. 0.6 0.9 1.0 Current-dollar GDP.................... 3.2 3.5 3.7 Gross domestic purchases price index... 3.5 3.5 3.6 Corporate Profits Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) decreased $5.2 billion in the first quarter, compared with a decrease of $52.9 billion in the fourth quarter. Current-production cash flow (net cash flow with inventory valuation and capital consumption adjustments) -- the internal funds available to corporations for investment -- increased $15.1 billion in the first quarter, in contrast to a decrease of $55.7 billion in the fourth. Taxes on corporate income decreased $32.6 billion in the first quarter, compared with a decrease of $15.0 billion in the fourth. Profits after tax with inventory valuation and capital consumption adjustments increased $27.3 billion, in contrast to a decrease of $37.9 billion. Dividends increased $16.8 billion, compared with an increase of $21.7 billion; current-production undistributed profits increased $10.6 billion, in contrast to a decrease of $59.5 billion. Domestic profits of financial corporations increased $14.2 billion in the first quarter, in contrast to a decrease of $74.4 billion in the fourth. Domestic profits of nonfinancial corporations increased $3.4 billion, in contrast to a decrease of $34.3 billion. In the first quarter, real gross corporate value added increased. Profits per unit of real value added were unchanged, reflecting an increase in unit prices and a decrease in unit nonlabor costs that were offset by an increase in unit labor costs. The rest-of-the-world component of profits decreased $22.8 billion in the first quarter, in contrast to an increase of $55.8 billion in the fourth. This measure 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 first-quarter decrease was accounted for by a much smaller increase in receipts than in payments. Profits before tax decreased $144.2 billion in the first quarter, in contrast to an increase of $0.2 billion in the fourth (see ?Provisions of the Economic Stimulus Act of 2008? below). 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 of fixed assets and inventory withdrawals reported on a tax-return, historical-cost basis to the current-cost measures used in the national income and product accounts. The capital consumption adjustment increased $167.7 billion in the first quarter (from -$241.5 billion to -$73.8 billion), in contrast to a decrease of $4.1 billion in the fourth. The inventory valuation adjustment decreased $28.7 billion (from -$69.4 billion to -$98.1 billion), compared with a decrease of $49.1 billion. 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. This measure reflects depreciation-accounting practices used for federal income tax returns. According to this measure, domestic profits of financial and nonfinancial corporations decreased. The decrease in nonfinancial corporations reflected decreases in all the aggregate industries shown except information; the largest decrease was in manufacturing. Within manufacturing, all the detailed industries shown decreased except petroleum; the largest decrease was in "other durable goods." Provisions of the Economic Stimulus Act of 2008 The Economic Stimulus Act of 2008 provided for a first-year bonus depreciation of 50 percent for qualifying property purchased and put in place in 2008. The law also raised the ceiling for small business expensing under Internal Revenue Code Section 179 from $128,000 to $250,000. Profits from current production are not affected because they do not depend on the depreciation- accounting practices used for federal income tax returns; rather, they are based on depreciation of fixed assets valued at current cost and using consistent depreciation profiles based on used-asset prices. The additional depreciation provided for by the 2008 Act is estimated to have increased tax-based depreciation expenses in the first quarter by $139.7 billion (annual rate) and reduced profits before tax, which is based on earnings reported on tax returns, by the same amount. The capital consumption adjustment, which is the difference between the depreciation specified in the tax code and the depreciation underlying profits from current production, also increased by the same amount because the Act raised tax depreciation by $139.7 billion. (First-quarter profits tax liability was reduced by $37.8 billion, and profits after tax were reduced by $102.0 billion.) As with corporate profits from current production, the effects of the provisions of the Act on nonfarm proprietors? income with capital consumption and inventory valuation adjustments (table 10) were offsetting; nonfarm proprietors? income without these adjustments was reduced, and the related capital consumption adjustment was increased by the same amount. The other major national income and product account components and aggregates shown in this release were not affected. * * * BEA's national, international, regional, and industry estimates; the Survey of Current Business; and BEA news releases are available without charge on BEA's Web site at www.bea.gov. By visiting the site, you can also subscribe to receive free e-mail summaries of BEA releases and announcements. * * * Next release--July 31, 2008, at 8:30 A.M. EDT for: Advance estimate of gross domestic product for the second quarter of 2008 and annual revision (first quarter 2005 through first quarter 2008).