The business situation - 1st quarter, 1987

Survey of Current Business, July, 1987

The increase in exports was predominantly in merchandise, with both agricultural and nonagricultural products contributing. Agricultural exports have increased in three of the last four quarters; the uptrend reflects lower loan rates under Federal price support programs, dollar depreciation, and increasing foreign demand. (The first-quarter decline can be traced, in large part, to a drop in soybean exports as Brazil's new crop became available.) In the second quarter, sales of corn and wheat to the Soviet Union contributed to the increase. In nonagricultural exports, the increase was widespread among end-use categories and is largely traceable to the increasing competitiveness of U.S. exports in world markets resulting from dollar depreciation. Exports of services increased slightly after a big first-quarter jump that was largely due to foreign military sales.

The increase in imports was more evenly split between merchandise and services. Petroleum imports accounted for much of the increase in merchandise imports, increasing 17 percent after two consecutive quarterly declines of well over 30 percent each. The increase in petroleum imports, despite an increase in its price, is traceable to relatively stable demand at a time of declining domestic production. An increase in imports of services was in factor incomes.

Government purchases

Real government purchases increased $2 1/2 billion, or 1 1/2 percent, in the second quarter, following a decline of $12 billion, or 6 percent, in the first (table 5). These changes largely reflected the pattern of CCC transactions in Federal nondefense purchases; government purchases less CCC inventory change increased $9 billion in each quarter.

Among other Federal purchases, national defense purchases registered another strong increase; as in the first quarter, the increase was concentrated in military hardware and in services other than compensation of employees. Nondefense purchases other than CCC inventory change increased slightly, following three quarters of decline.

State and local government purchases increased less than in the first quarter. The slowdown was in structures, as highway construction declined slightly after a $2 billion increase in the first quarter.

GNP Prices

The GNP price index (fixed weights) increased 4 1/2 percent in the second quarter, the same rate as in the first (table 6). The price index for gross domestic purchases also increased 4 1/2 percent in the second quarter, following a 5 1/2-percent increase in the first. (Both price measures were boosted about 1/2 percentage point in the first quarter by a 3-percent pay raise for Federal civilian and military personnel; such a pay raise is treated in the NIPA's as an increase in the price of employee services purchased by the Federal Government.) The difference (1 percentage point) in the first-quarter increases in the two price measures had reflected a large--12 1/2 percent--increase in import prices. (Prices of imported goods are subtracted out in deriving GNP prices but not in deriving prices of gross domestic purchases.) Prices of imported petroleum had jumped 127 1/2 percent in the first quarter; in the second quarter, they increased 23 1/2 percent. Other merchandise import prices increased 4 percent in the second quarter, following a 7-percent increase in the first.