The business situation - 1st quarter 1992

Survey of Current Business, May, 1992 by Daniel Larkins, Larry R. Moran, Ralph W. Morris, David T. Dobbs

U.S. PRODUCTION and U.S. demand both increased moderately in the first quarter of 1992 (chart 1 and table 1). Real gross domestic product (GDP), a measure of goods and services produced in the United States, increased 2.4 percent; real gross domestic purchases, a measure of goods and services purchased by U.S. residents, increased 2.5 percent.(1) As explained in the "Revisions" section of this article, these "preliminary" estimates (as well as the "preliminary" estimates of the price indexes for GDP and gross domestic purchases) are somewhat higher than the "advance" estimates issued a month ago.

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The first-quarter increase in real GDP was larger than the increases registered in the three preceding quarters. All of these increases were smaller than the increases that are typical of a business cycle recovery. The level of real GDP in the first quarter was slightly below its level at the peak of the business cycle in the third quarter of 1990; in other business cycles since 1960, real GDP had surpassed its previous peak within three quarters of the cyclical trough.

Both real gross domestic purchases and real final sales to domestic purchasers increased in the first quarter after decreasing in the fourth. Final sales to domestic purchasers was particularly strong, increasing more in the first quarter than in the preceding three quarters combined. The first-quarter increase was almost twice as big as the increase in gross domestic purchases; the difference reflected a sharp downswing in inventory investment. Each of the major components of final sales contributed to the first-quarter increase, with personal consumption expenditures accounting for more than three-fourths of it.

Personal consumption expenditures

Real personal consumption expenditures (PCE) increased 5.4 percent in the first quarter, the largest increase in more than 5 years, after no change in the fourth quarter and an increase of 2.3 percent in the third (table 2). As a result of the first-quarter increase, the level of PCE was 1.0 percent above its level at the peak of the business cycle. The large increase reflected a jump in expenditures for durable goods, a sizable increase in expenditures for nondurable goods, and a modest increase in expenditures for services.

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Real disposable personal income increased 3.7 percent in the first quarter, the largest increase in 2 years, after small increases in the third and fourth quarters. However, other factors that underlie consumer spending remained weak. The unemployment rate rose to 7.2 percent in the first quarter, and the Index of Consumer Sentiment (prepared by the University of Michigan's Survey Research Center) slid further, although it did turn up late in the quarter.

Expenditures for durable goods jumped 18.4 percent in the first quarter after dropping 5.7 percent in the fourth. First-quarter increases were widespread, with the largest being in new foreign cars, used cars, consumer electronics, and kitchen and other household appliances.

Expenditures for nondurable goods increased 5.4 percent in the first quarter after decreasing 3.9 percent in the fourth. Again, increases were widespread; the only major component that decreased was energy, reflecting a decrease in gasoline and oil.

Expenditures for services increased 2.5 percent in the first quarter after increasing 3.7 percent in the fourth. "Other" services accounted for the first-quarter increase; within "other services," the largest increase was in brokerage commissions.

Nonresidential fixed investment

Real nonresidential fixed investment increased 1.7 percent in the first quarter after decreasing for five consecutive quarters (table 3). Its first-quarter level was 8.6 percent below its level at the business cycle peak.

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The factors that are associated with investment spending have been mixed in recent quarters. Capacity utilization rates have been falling but are higher than usual for this stage of the business cycle. Real final sales to domestic purchasers and corporate profits increased modestly until the first quarter, when they increased sharply. The yield on new high-grade corporate bonds has been decreasing for more than a year. The latest Census Bureau survey of plans for plant and equipment expenditures, released in early June, reported that real spending in 1992 is expected to be 6.0 percent higher than in 1991.

Structures decreased 3.0 percent in the first quarter after decreasing 7.8 percent in the fourth. The first-quarter decrease is the sixth consecutive decrease, but it is considerably smaller than the preceding ones. A decrease in nonresidential buildings was more than accounted for by a decrease in commercial buildings; industrial buildings increased. The decrease in commercial buildings, in turn, was another in a long series of decreases that have left commercial buildings at its lowest level in 13 years. Mining exploration, shafts, and wells--mostly oil wells--posted another decrease; utilities and "other" structures swung up.