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FOR WIRE TRANSMISSION: 8:30 A.M. EDT, THURSDAY, AUGUST 26, 1999

BEA 99-25

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

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 1.8 percent in the second quarter of 1999, according to preliminary estimates released by the Commerce Department's Bureau of Economic Analysis. In the first quarter, real GDP increased 4.3 percent. Real GDP increased $34.7 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 advance estimates issued last month. In the advance estimates, the increase in real GDP was 2.3 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.

As announced in the February issue of the Survey of Current Business, 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) on October 28, 1999, along with the release of the advance estimates for the third quarter of 1999. The August 1999 issue of the Survey presented the first 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 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 2.1 percent in the second quarter, the same increase as in the advance 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 1.4 in the second quarter, compared with an increase of 1.3 percent in the first.

Real personal consumption expenditures increased 4.6 percent in the second quarter, compared with an increase of 6.7 percent in the first. Real nonresidential fixed investment increased 11.2 percent, compared with an increase of 8.5 percent. Nonresidential structures decreased 1.2 percent, in contrast to an increase of 5.7 percent. Producers' durable equipment increased 15.9 percent, compared with an increase of 9.5 percent. Real residential fixed investment increased 7.7 percent, compared with an increase of 15.4 percent.

Real exports of goods and services increased 4.3 percent in the second quarter, in contrast to a decrease of 5.1 percent in the first. Real imports of goods and services increased 14.4 percent, compared with an increase of 13.5 percent.

Real federal government consumption expenditures and gross investment decreased 3.5 percent in the second quarter, compared with a decrease of 1.9 percent in the first. National defense decreased 3.4 percent, compared with a decrease of 6.6 percent. Nondefense decreased 3.5 percent, in contrast to an increase of 7.4 percent. Real state and local government consumption expenditures and gross investment decreased 0.7 percent, in contrast to an increase of 7.7 percent.

The real change in business inventories subtracted 1.19 percentage points from the second-quarter change in real GDP, after subtracting 0.27 percentage point from the first-quarter change. Businesses increased inventories $12.1 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 3.0 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 3.1 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 1.5 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 3.4 percent, or $73.2 billion, in the second quarter. In the first quarter, current-dollar GDP increased 6.0 percent, or $127.5 billion.

Revisions

The preliminary estimate of the second-quarter increase in real GDP is 0.5 percentage point, or $9.3 billion, lower than the advance estimate issued last month. The downward revision to the percentage change in real GDP primarily reflected an upward revision to imports ($13.9 billion) and a downward revision to nonfarm change in business inventories ($6.4 billion) that more than offset an upward revision to personal consumption expenditures for durable goods ($7.4 billion).

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

Corporate Profits

Profits from current production (profits before tax with inventory valuation and capital consumption adjustments) decreased $9.2 billion in the second quarter, according to preliminary 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 $13.3 billion in the second quarter, in contrast to an increase of $34.7 billion in the first.

Domestic profits of financial corporations decreased $3.0 billion in the second quarter, in contrast to an increase of $13.4 billion in the first.

Domestic profits of nonfinancial corporations decreased $3.8 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 $2.2 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 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 $15.6 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 $4.0 billion in the second quarter (from $104.6 billion to $108.6 billion), compared with an increase of $4.4 billion in the first. The inventory valuation adjustment decreased $28.7 billion (from $11.6 billion to -$17.1 billion), compared with a decrease of $1.8 billion; the second-quarter decrease was largely due to a sharp increase in energy prices.

Profits tax liability increased $6.8 billion in the second quarter, compared with an increase of $15.1 billion in the first. Profits after tax increased $8.8 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 $4.6 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 on BEA's web site:http://www.bea.gov

STAT-USA maintains an electronic bulletin board (EBB) and an Internet site, which contain BEA estimates, BEA news releases, and the Survey of Current Business. The information available through STAT-USA is often more detailed and more timely than that available from other sources. To subscribe to STAT-USA's World Wide Web system, go to: http://www.stat-usa.gov. Subscriptions for single-user unlimited access to STAT-USA's Internet information are $50.00 for 3 months or $150.00 for 1 year. For further information, call (202) 482-1986.

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 Summary of 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 D.C. 20402. First class mail: Annual subscription $88.00 domestic. Second class mail: Annual subscription $39.00 domestic, $48.75 foreign; single issue $14.00 domestic, $17.50 foreign.

Next release -- September 30, 1999, at 8:30 A.M. EDT for:
Gross Domestic Product: Second Quarter 1999 (Final)
Corporate Profits: Second Quarter 1999 (Revised)

Full Release & Tables (PDF) (PDF)

GDP

Virginia H. Mannering

(202) 606-5304

Profits

Kenneth A. Petrick

(202) 606-9738

Technical Note

Gross Domestic Product, Second Quarter 1999 (Preliminary)

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. Additional material 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. The Survey also will provide a more detailed analysis of the estimates ("The Business Situation").

Real GDP (revised) : Real GDP is now estimated to have increased 1.8 percent in the second quarter of 1999, 0.5 percentage point less than the advance estimate of 2.3 percent. Real GDP increased 4.3 percent in the first quarter. The 0.5-percentage point downward revision to second-quarter real GDP growth equals the average revision--without regard to sign--between the advance and preliminary estimates over the past 20 years.

As in the advance 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 was mainly accounted for by a slowdown in consumer spending and a downturn in government spending that more than offset an upturn in exports.

GDP excluding motor vehicle output increased 1.7 percent in the second quarter after increasing 5.3 percent in the first. GDP less final sales of computers increased 1.5 percent in the second quarter after increasing 4.1 percent in the first. (See appendix table A of the news release.)

Final sales to domestic purchasers, a measure of domestic demand calculated as GDP less change in inventories and net exports, increased 4.3 percent in the second quarter, 0.4 percentage point more than the advance estimate of 3.9 percent; in the first quarter, this measure had increased 6.8 percent.

Prices (revised) : The chain-type price index for gross domestic purchases increased 2.1 percent in the second quarter, the same as in the advance estimate, after increasing 1.2 percent in the first. Excluding food and energy prices, which are normally more volatile than many other prices, the price index increased 1.4 percent, after increasing 1.3 percent.

Corporate Profits : Profits from current production decreased 1.1 percent (at a quarterly rate) in the second quarter, after increasing 5.7 percent in the first. Compared with the same quarter a year ago, current-production profits in the second quarter of 1999 increased 4.8 percent.

The current-production measure differs from profits as they are usually reported in corporate financial statements. It excludes non-operating items, such as special charges and capital gains and losses, and is based on replacement-cost estimates of inventory withdrawals and of depreciation rather than on historical-cost values. In the second quarter, large increases in the prices of energy products, following small first-quarter decreases, resulted in large inventory profits for companies that value withdrawals from inventories at historical prices. The companies that were most affected were in petroleum-related industries petroleum extraction and refining, and utilities. The "inventory valuation adjustment," which removes these inventory profits from the before-tax profits measure, was a negative $17.1 billion in the second quarter, following a positive $11.6 billion in the first quarter. As a result, profits from current production decreased 1.1 percent in the second quarter, but before-tax profits increased 2.1 percent.

Sources of Revision

The downward revision to second quarter GDP primarily reflected revised estimates of imports and of inventory investment. The attached table shows both the BEA assumptions used for the advance estimate and newly available and revised source data for the preliminary estimate for selected key series.

The revisions to imports mainly reflected the incorporation of newly available June Census Bureau data for international trade in goods. BEA had assumed an increase of slightly less than 1 percent; the Census data now show an unusually large 4.4-percent increase.
The revision to inventory investment primarily reflected the incorporation of revised May and newly available June Census Bureau data. For merchant wholesale and retail trade, the revisions also reflect the incorporation of historical revisions to these series that include benchmarking to the 1997 Censuses of Wholesale and Retail Trade. As is BEA's practice, the revised source data are incorporated into the second-quarter GDP estimates on a "best-change" basis. That is, BEA's revised second-quarter 1999 change is based on second-quarter 1999 changes from the revised Census Bureau series. The revised Census Bureau levels for earlier periods have not been incorporated; these Census Bureau revisions will be incorporated by BEA as part of the comprehensive revision described below. (These historical revisions also affected the retail trade sales series used to estimate consumer spending for goods.)

Comprehensive revision

As previously announced, BEA plans to release the initial results of its 11th comprehensive, or benchmark, revision of the national income and product accounts on October 28, 1999, along with the release of the advance estimates for the third quarter of 1999. The August issue of the Survey of Current Business presented an article on definitional and classificational changes that will be included in the revision. The September issue will present an article that will describe new and redesigned tables, and in the October issue, an article will discuss statistical changes and other aspects of the revision.

Robert P. Parker
Chief Statistician, Bureau of Economic Analysis
202-606-9607
August 26, 1999
Attachment

                         Table A.--SOURCE DATA FOR THE ADVANCE AND PRELIMINARY
                            ESTIMATES OF GDP FOR THE SECOND QUARTER OF 1999

This table shows the actual data used for the preliminary estimate of GDP for the second quarter of
1999.  For these key series, actual data for June were not available in time for inclusion in the
advance GDP estimate released on July 29, 1999, and BEA made assumptions for these source
data.  The numbers in brackets show the June values that had been assumed for the advance
estimate.  For most series, the data incorporated for May and, in some cases, for April were
preliminary and the numbers shown in brackets are the values used last month.

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.  
                                                           


                                                                                    1999
                                                         Jan.       Feb.       Mar.        Apr.      May.       Jun.
 Private fixed investment:

   Nonresidential structures:
     Buildings: 
1         Value of new nonresidential 
          construction put in place........             185.8      189.0      189.3       184.7     182.5      183.7
                                                                                         {182.1}   {179.6}    {188.5}
     
  Producers' durable equipment:
2  Manufacturers' shipments of
     complete aircraft.....................              58.3       37.4       34.4        41.2      38.5       30.4
                                                                                                    {37.9}     {33.3}
  Residential structures:
    Value of new residential
      construction put in place:
3      1-unit structures......................          208.7      210.3      212.4       212.9     213.3      212.0
                                                                                         {211.4}   {210.6}    {208.9}
  
  
4     2-or-more-unit structures..........                26.4       27.8       29.1        28.4      27.7       27.8
                                                                                          {28.2}    {27.0}     {27.7}
  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.....                  .9       17.2       12.6         7.3      16.0       16.8
                                                        {-8.0}     {27.2}      {9.6}       {7.1}    {20.7}     {28.9}
 Net exports:

  Exports of goods:
6   U.S. exports of goods, 
      balance-of-payments basis........                 663.2      656.4      651.9       663.2     661.5      663.4
                                                                                                   {655.6}    {667.7}
6a        Excluding gold.......................         660.5      653.4      649.0       659.2     659.4      659.5
                                                                                                   {653.4}    {664.7}
                                                                                                              
   Imports of goods:
7  U.S. imports of goods,
          balance-of-payments basis.......              943.4      958.5      960.1       967.2     996.2     1040.4
                                                                                                   {994.1}   {1002.6}
 a        Excluding gold......................          939.8      955.8      956.6       964.0     993.2     1037.1
                                                                                                   {991.1}    {999.6}

8   Net exports of goods....................           -280.2     -302.1     -308.2      -304.0    -334.8     -377.0
                                                                                                  {-338.5}   {-334.9}
8a        Excluding gold.......................        -279.3     -302.4     -307.6      -304.8    -333.8     -377.5
                                                                                                  {-337.7}   {-334.9}
 Government:

  State and local:
   Structures:
9      Value of new construction put
               in place...........................      140.5      146.5     146.1       142.2      136.2      135.7
                                                                                        {140.6}    {139.5}    {143.8}