The business situation - 2nd quarter 1993

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

Structures increased 6.4 percent after edging up 0.5 percent. The second-quarter increase was the largest in more than 3 years. Most of the increase was in utilities and in mining exploration, shafts, and wells. Nonresidential buildings increased, but considerably less than in the first quarter; the second-quarter increase was accounted for by religious, educational, hospital, institutional, and miscellaneous structures. Commercial structures changed little; a slight slippage in office construction offset a small increase in other commercial construction. Industrial structures decreased.

Producers' durable equipment (PDE) increased 17.4 percent after increasing 19.9 percent. Information processing equipment and "other" PDE increased less than in the first quarter. The slowdown in information processing equipment was more than accounted for by computers; communications equipment, the second largest component of information processing equipment, rebounded from a first-quarter drop. The slowdown in "other" PDE was widespread. Both transportation equipment and industrial equipment increased more than in the first quarter. The step-up in transportation equipment was more than accounted for by autos, which increased after a slight decrease; purchases of trucks and of civilian aircraft increased less than in the first quarter.

Residential investment

Real residential investment decreased 8.4 percent in the second quarter after increasing 1.5 percent in the first. The downturn was accounted for by single-family construction. Multifamily construction decreased less than in the first quarter, and "other" residential investment was unchanged.

Single-family construction decreased 14.3 percent after increasing 24.2 percent. Single-family construction in a quarter is largely determined by housing starts in that quarter and in the preceding quarter. In the first two quarters of 1993, starts averaged 1.053 million units (annual rate), down from a combined average of 1.063 million for the fourth quarter of 1992 and the first quarter of 1993 (chart 3).

The second-quarter decrease in multifamily construction was relatively small. Weakness in the multifamily market continues to reflect very high rental vacancy rates.

"Other" residential investment was unchanged after decreasing, as a decrease in mobile home sales was offset by an increase in brokers' commissions.(3) The increase in brokers' commissions reflected somewhat stronger house sales. Sales of existing houses increased 1.4 percent (not an annual rate), and sales of new houses increased 10.5 percent. These increases in sales partly reflected a continued downtrend in mortgage interest rates (chart 4). The Housing Affordability Index, prepared by the National Association of Realtors, reflects the combined effects of median house prices, median family incomes, and mortgage rates; the index's upward trend continued in the second quarter, as the effects of higher incomes and lower mortgage rates more than offset the effect of higher prices.