Business situation: preliminary estimates for the third quarter of 2004

Survey of Current Business, Dec, 2004 by Brian C. Moyer, Shelly Smith, David F. Sullivan, Christopher Falcone

THE growth of gross domestic product (GDP) picked up in the third quarter of 2004 and inflation slowed, according to the "preliminary" estimates of the national income and product accounts (NIPAs) (table 1 and chart 1). (1) Real disposable personal income decelerated. A similar picture of GDP growth and prices was shown in the "advance" estimates released in October; however, income growth decelerated more in the advance estimate.

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* Real GDP increased 3.9 percent in the third quarter after increasing 3.3 percent in the second. The advance estimate for the third quarter had shown a 3.7-percent increase. Net exports, consumer spending, and nonresidential fixed investment were revised up in the preliminary estimates, and inventory investment was revised down. (2)

* Prices of goods and services purchased by U.S. residents increased 1.8 percent, the same as in the advance estimate, after increasing 3.5 percent.

* Real disposable personal income increased 2.0 percent after increasing 2.8 percent. The advance estimate for the second quarter had shown a 1.4-percent increase.

The insurance transactions associated with the hurricanes that struck portions of the southern and eastern United States in August and September did not directly affect third-quarter GDP, because of the treatment of insurance services that was introduced as part of the 2003 comprehensive revision of the NIPAs. (3) Estimates of other, indirect, effects of the hurricanes are not available, because these effects may occur with a lag, and they generally cannot be disentangled from the regular source data that BEA uses to prepare the GDP estimates. However, as described in the section on corporate profits, some income-side measures were affected by the hurricanes, and estimates of those effects have been incorporated.

The acceleration in GDP growth in the third quarter mainly reflected a step-up in consumer spending and a smaller decrease in net exports than in the second quarter; these developments were partly offset by a downturn in inventory investment and by a slowdown in residential fixed investment.

* Consumer spending increased 5.1 percent and contributed 3.53 percentage points to GDP growth, 2.43 percentage points more than it contributed in the second quarter. Purchases of durable goods turned up, purchases of nondurable goods accelerated, and purchases of services stepped up slightly.

* Imports, which are subtracted in the calculation of GDP, increased 6.0 percent and subtracted 0.89 percentage point from third-quarter GDP growth, about half as much as they had subtracted in the second quarter. (Exports slowed somewhat, contributing 0.08 percentage point less to GDP growth than in the second quarter.)

* Inventory investment subtracted 0.91 percentage point from GDP growth after adding 0.78 percentage point in the second quarter. Real inventory stocks increased $35.9 billion in the third quarter after increasing $61.1 billion in the second quarter and $40.0 billion in the first quarter.

* Residential fixed investment increased 1.7 percent and contributed 0.10 percentage point to third-quarter GDP growth, 0.76 percentage point less than in the second quarter.

Government spending slowed and nonresidential fixed investment increased at about the same rate as in the second quarter.

* Government spending increased 1.2 percent and contributed 0.23 percentage point to third-quarter GDP growth, 0.18 percentage point less than in the second quarter.

* Nonresidential fixed investment increased 12.9 percent and contributed 1.27 percentage points, 0.06 percentage point more than in the second quarter. Investment in equipment and software accelerated somewhat, and investment in structures decreased slightly after increasing in the second quarter.

The preliminary estimates for the third quarter also show the following:

* Real final sales of domestic product (GDP less the change in private inventories) increased 4.9 percent after increasing 2.5 percent (table 2).

* The production of goods stepped up and the production of services accelerated slightly, but the production of structures turned down.

* Motor vehicle output turned up. Excluding motor vehicles, real GDP increased 3.7 percent after increasing 4.0 percent.

* Final sales of computers stepped up, increasing 20.9 percent after little change in the previous two quarters.

* Gross domestic purchases increased 4.0 percent after increasing 4.2 percent.

* The gross saving rate--saving from all sources as a percentage of gross national income--held steady at 13.9 percent. The net saving rate decreased to 1.2 percent from 2.1 percent in the second quarter. Net saving is a measure of the saving that is available for augmenting the stock of fixed assets; it equals gross saving less consumption of fixed capital (CFC). The decrease in the net saving rate reflected a large increase in the CFC that resulted from the estimated damage to the stock of private fixed assets caused by the third-quarter hurricanes.

Personal Consumption Expenditures