The business situation - 2nd quarter 1993

Survey of Current Business, August, 1993 by Daniel Larkins, Larry R. Moran, Ralph W. Morris

Real gross domestic product (GDP), a measure of goods and services produced in the United States, increased 1.8 percent in the second quarter of 1993, up from a 0.8-percent increase in the first quarter (chart 1).(1) Real gross domestic purchases, a measure of goods and services purchased by U.S. residents, increased 2.8 percent, up slightly from a 2.5-percent increase in the first quarter. The fixed-weighted price index for gross domestic purchases increased 3.0 percent after increasing 3.5 percent.

National income and product account (NIPA) estimates for the first quarter of 1990 through the second quarter of 1993 have been revised as part of the annual revision that incorporates new and revised source data and methodologies. The revised estimates show somewhat stronger growth and slightly more inflation in the U.S. economy than was indicated by the previously published estimates. See "Annual Revision of the U.S. National Income and Product Accounts" in this issue.

The step-up in real GDP growth in the second quarter, though relatively modest, was broadly based. Production of goods other than motor vehicles and of structures turned up, and production of services increased more than in the first quarter; motor vehicle production, in contrast, turned down (table 1).

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The slight step-up in real gross domestic purchases reflected a sharp acceleration in final sales to domestic purchasers that was largely offset by a sharp slowdown in the rate of inventory accumulation (table 2). The following are highlights of the estimates of final sales.

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* Personal consumption expenditures increased much more than in the first quarter.

* Nonresidential fixed investment increased as much as in the first quarter, but residential investment decreased after a small increase.

* Government purchases rebounded from a sharp first-quarter decrease.

Personal consumption expenditures

Real personal consumption expenditures increased 3.2 percent in the second quarter after edging up 0.8 percent in the first (table 3). Expenditures for goods more than accounted for the step-up; expenditures for services increased less than in the first quarter.

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For the second consecutive quarter, the factors that are usually associated with changes in consumer spending sent mixed signals (chart 2).

Real disposable personal income increased 5.9 percent after falling 7.8 percent.(2) In contrast, the Index of Consumer Sentiment (prepared by the University of Michigan's Survey Research Center) fell sharply after increasing. The unemployment rate was 7.0 percent in both quarters.

Expenditures for durable goods jumped 10.8 percent after decreasing 1.3 percent. All major types of durable goods contributed to the upturn. Motor vehicles and parts jumped sharply after decreasing. Furniture and household equipment increased more than in the first quarter; the largest second-quarter increase was in consumer electronics, such as computers and televisions. "Other" durable goods (such as jewelry, books, sporting goods, and boats) turned up.

Expenditures for nondurable goods increased 2.6 percent after decreasing 2.1 percent. Food increased after a decrease; the increase was more than accounted for by purchased meals, as food purchased for off-premises consumption decreased. Clothing and shoes also increased after a decrease. "Other" nondurable goods increased more, and energy increased less, than in the first quarter.

Expenditures for services increased 1.7 percent after increasing 3.1 percent; the second-quarter increase was the smallest since the fourth quarter of 1991. The slowdown was accounted for by household operation, which decreased after increasing, and by medical care and "other" services, both of which increased less than in the first quarter. The decrease in household operation was accounted for by electricity and natural gas and reflected milder-than-normal spring weather. The slowdown in "other" services was accounted for by brokerage and investment counseling, which decreased after increasing sharply, this downturn was partly offset by upturns in recreation (largely in casino gambling and in motion picture admissions), in education and research, and in religious and welfare services. Transportation increased twice as much as in the first quarter, and housing increased about the same in both quarters.

Nonresidential fixed investment

Real nonresidential fixed investment increased 14.4 percent in the second quarter, the same rate as in the first (table 4). Structures increased more than in the first quarter, but producers' durable equipment increased less.

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Many of the factors that underlie investment spending were moderately favorable in the second quarter. The yield on new high-grade corporate bonds continued its downtrend, and the capacity utilization rate in manufacturing continued its uptrend. (However, the changes in both series were smaller than in the first quarter.) Real final sales of domestic product increased moderately, as it has in two of the three preceding quarters. Corporate profits (in current dollars) increased modestly, and cash flow relative to fixed investment remained high.