From the November 1998 SURVEY OF CURRENT
BUSINESSThis article was prepared by Daniel Larkins, Larry R. Moran, Ralph W. Morris, and Deborah Y. Sieff.
Economic growth accelerated in the third quarter of 1998, according to the "advance" estimates of the national income and product accounts (NIPA's), as real gross domestic product (GDP) increased 3.3 percent after increasing 1.8 percent in the second quarter (chart 1 and table 1)./1/ Prices increased at about the same rate as in the second quarter; for example, the price index for gross domestic purchases increased 0.5 percent after increasing 0.4 percent. Real disposable personal income (DPI) increased 2.6 percent, the same as in the second quarter, and the personal saving rate (current-dollar saving as a percentage of current-dollar disposable personal income) continued its downtrend, decreasing to 0.1 percent from 0.4 percent.
The acceleration in real GDP growth from 1.8 percent to 3.3 percent was more than accounted for by inventory investment. Inventory stocks increased $57.2 billion in the third quarter after increasing $38.2 billion in the second; in the first quarter, stocks had increased $91.4 billion. This pattern of inventory investment added 0.96 percentage point to the third-quarter change in real GDP after subtracting 2.66 percentage points from the second-quarter change. Real final sales of domestic product—GDP less change in business inventories—decelerated to a 2.3-percent increase, following a 4.6-percent increase.
The largest contributors to the 3.3-percent third-quarter increase in real GDP were personal consumption expenditures (PCE) and inventory investment./2/ PCE increased 3.9 percent and contributed 2.64 percentage points to GDP growth; purchases of services and of nondurable goods rose./3/ The 0.96-percentage-point contribution by inventory investment largely reflected a sharp reduction in the pace of inventory liquidation in the motor vehicle industry. (Though inventory investment in the motor vehicle industry boosted third-quarter GDP, total motor vehicle output decreased, restraining GDP; inventory investment and output were both affected by a strike in the industry.) Residential investment and government spending also contributed to the third-quarter increase in real GDP. The increase in real GDP was damped by an increase in imports and by decreases in exports and in nonresidential fixed investment.
Motor vehicles.—Real motor vehicle output decreased 6.0 percent in the third quarter after decreasing 11.2 percent in the second; both decreases partly reflected the strike at a motor vehicle manufacturer from June 5 to July 29. Truck output accounted for the third-quarter decrease; auto output increased after three consecutive decreases (table 2).
Final sales of motor vehicles to domestic purchasers decreased 23.0 percent after increasing 22.9 percent./4/ Purchases by consumers, by businesses, and by governments all turned down.
Consumer purchases turned down sharply even though the factors frequently considered in analyses of consumer spending were only a little less favorable than in the second quarter. As mentioned earlier, real disposable personal income increased 2.6 percent, the same as in the second quarter. The Index of Consumer Sentiment (prepared by the University of Michigan Survey Research Center) decreased but remained high. The unemployment rate increased from 4.4 percent to 4.6 percent. In addition, motor vehicle manufacturers continued to offer attractive sales-incentive programs, and interest rates on new-car loans changed little.
Exports and imports of motor vehicles both decreased substantially more than in the second quarter.
Motor vehicle inventories decreased $3.7 billion after decreasing $22.6 billion; in the first quarter, they had increased $2.6 billion. For new domestic autos, the inventory-sales ratio (calculated from units data) increased to 2.3 at the end of the third quarter from 1.9 at the end of the second; the traditional industry target is 2.4.
The price index for gross domestic purchases, which measures the prices of the goods and services purchased by U.S. residents, increased 0.5 percent in the third quarter after increasing 0.4 percent in the second (table 3). The price index for gross domestic purchases less food and energy increased 0.6 percent, about the same as in the second quarter (chart 2).
PCE prices increased 1.0 percent after increasing 0.9 percent. PCE energy prices decreased 5.8 percent after decreasing 7.5 percent, as prices of gasoline and oil decreased less than in the second quarter. PCE food prices increased 2.8 percent after increasing 1.3 percent, partly reflecting step-ups in the prices of poultry and of processed dairy products. Prices of PCE less food and energy increased 1.0 percent after increasing 1.3 percent; prices of furniture and household equipment decreased more than in the second quarter, and prices of housing increased less than in the second quarter.
Prices of nonresidential fixed investment decreased 3.6 percent after decreasing 3.1 percent. Prices of structures increased 0.7 percent after increasing 3.1 percent. Prices of producers' durable equipment decreased 5.1 percent, about the same as in the second quarter; prices of computers and peripheral equipment decreased about the same as in the second quarter, prices of industrial equipment slowed, and prices of transportation equipment turned up. Prices of private residential investment increased 2.3 percent after increasing 1.7 percent.
Prices of government consumption expenditures and gross investment increased 1.1 percent after increasing 0.8 percent. Prices paid by the Federal Government increased 0.1 percent after no change; nondefense prices were unchanged after decreasing, and national defense prices increased about as much as in the second quarter. Prices paid by State and local governments increased 1.6 percent after increasing 1.2 percent.
The GDP price index, which measures the prices of goods and services produced in the United States, increased 0.8 percent after increasing 0.9 percent. This index, unlike the index for gross domestic purchases, includes the prices of exports and excludes the prices of imports. Export prices decreased 2.9 percent after decreasing 1.8 percent; prices of industrial supplies and materials and prices of nonautomotive capital goods decreased more than in the second quarter. Import prices decreased 4.8 percent after decreasing 4.5 percent; prices of foods, feeds, and beverages, of industrial supplies and materials, and of autos decreased more than in the second quarter, but prices of petroleum products and of nonautomotive consumer goods decreased less than in the second quarter.
Current-dollar DPI increased 3.6 percent after increasing 3.5 percent. The personal saving rate decreased to 0.1 percent from 0.4 percent, reflecting a larger increase in personal outlays than in DPI (chart 3). The third-quarter saving rate was the lowest since the quarterly series began in 1946. (Personal saving and the saving rate need not be greater than zero; negative personal saving, or dissaving, may occur when outlays are financed by borrowing, by selling investments or other assets, or by using savings from previous periods.)
Personal income increased $73.7 billion in the third quarter after increasing $78.0 billion in the second (table 4). In both quarters, the increase was mainly accounted for by wage and salary disbursements, which increased $57.8 billion after increasing $55.7 billion. Private wages and salaries increased $51.1 billion after increasing $49.4 billion. In both quarters, about two-thirds of the increase was accounted for by service industries, and the remaining third was accounted for by distributive industries; manufacturing decreased slightly after increasing slightly. Government wages and salaries increased $6.6 billion, about the same as in the second quarter.
Transfer payments increased $6.4 billion after increasing $6.8 billion.
Personal interest income increased $4.6 billion after increasing $6.0 billion. Proprietors' income increased $3.2 billion after increasing $7.5 billion; most of the slowdown was accounted for by a downturn in farm proprietors' income, as crop prices decreased more than in the second quarter and livestock prices decreased after increasing.
Personal contributions for social insurance, which is subtracted in the calculation of personal income, increased $4.3 billion, about the same as in the second quarter.
Personal tax and nontax payments increased $20.3 billion after increasing $26.1 billion. The slowdown was primarily accounted for by a downturn in estate and gift tax collections.
Footnotes:
1. Quarterly estimates in the NIPA's are expressed at seasonally adjusted annual rates unless otherwise specified. Quarter-to-quarter dollar changes are differences between the published estimates. Quarter-to-quarter percent changes are annualized and are calculated from unrounded data. Real estimates are calculated using a chain-type Fisher formula with annual weights and are expressed both as index numbers (1992$=$100) and as chained (1992) dollars. Price indexes (1992$=$100) also are calculated using a chain-type Fisher formula.
2. The level of GDP was not affected by the privatization in late July of the United States Enrichment Corporation (USEC) by the Federal Government, but the composition of GDP was affected. (The USEC performed commercial nuclear enrichment activities.) Proceeds of the sale totaled $3.1 billion (current dollars), $1.5 billion of which was treated as a sale of financial assets and, consequently, was excluded from GDP. The remaining $1.6 billion ($6.4 billion at an annual rate) was the market value of uranium inventories and machinery and equipment. The inventory portion was deducted from government consumption expenditures and added to the change in business inventories; the machinery and equipment portion was deducted from government gross investment and was added to gross private domestic fixed investment.
3. NIPA table 8.2 shows the contributions of the major components of GDP to the quarter-to-quarter percent change in real GDP.
4. For a longer term perspective on motor vehicle output and sales, see "Motor Vehicles, Model Year 1998" in this issue.
