News Release
FOR WIRE TRANSMISSION: 8:30 A.M. EDT, FRIDAY, JULY 31, 1998
BEA 98-24
Gross Domestic Product, 2nd quarter 1998 (advance); Revised Estimates: 1995 through 1st quarter 1998
This release is available as a text file download.
Full Release & Tables (Text)
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