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

In the third quarter of 2004, real personal consumption expenditures stepped up to a 5.1-percent increase from a 1.6-percent increase in the second quarter (table 3 and chart 2). (Over the past 10 years, consumption spending has increased at an average annual rate of 3.7 percent.) Purchases of durable goods and non-durable goods made the largest contributions to the step-up, but purchases of services also contributed.

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In durable goods, purchases of motor vehicles and parts increased 28.6 percent after a 6.0-percent decrease in the second quarter. Net purchases of used autos and used light trucks turned up, and purchases of new light trucks increased sharply after a moderate increase. In contrast, purchases of new autos decreased after a small increase. Purchases of furniture and household equipment increased more than in the second quarter; in the third quarter, step-ups were posted by video and audio goods, by computers, and by furniture. "Other" durable goods (which includes jewelry and watches) turned up.

In nondurable goods, purchases of gasoline, fuel oil, and other energy goods and of clothing and shoes turned up, and purchases of food and of "other" nondurable goods accelerated.

In services, spending on electricity and gas decreased less than in the second quarter, and spending on recreation (which includes casino gambling), on medical care, and on housing accelerated. In contrast, spending on "other" services and on transportation slowed.

Factors frequently considered in the analysis of consumer spending were mixed in the third quarter (chart 3). The Index of Consumer Sentiment (prepared by the University of Michigan's Survey Research Center) increased after decreasing in the second quarter, and the unemployment rate dropped from 5.6 percent to 5.4 percent, but real disposable personal income registered a fourth consecutive below-average increase. (4)

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Private fixed investment

Real private fixed investment increased 8.8 percent in the third quarter after increasing 13.9 percent in the second (table 4 and chart 4). (5)

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Nonresidential. Real private nonresidential fixed investment increased 12.9 percent in the third quarter after increasing 12.5 percent in the second. Investment in equipment and software increased more than in the second quarter, and investment in structures decreased slightly after an increase.

The step-up in equipment and software reflected step-ups in industrial equipment, in transportation equipment, and in "other" equipment. In contrast, investment in information processing equipment and software increased less than in the second quarter. The step-up in industrial equipment primarily reflected an acceleration in special industry machinery and an upturn in metalworking machinery. In transportation equipment, light trucks accelerated, and autos and "other" trucks turned up; in contrast, aircraft turned down after a second-quarter rebound. In "other" equipment, the upturn was led by an acceleration in construction machinery. Within information processing equipment and software, "other" information processing equipment, computers and peripheral equipment, and software slowed.