Business situation: Preliminary estimates for the first quarter 2002 - economics United States - Statistical Data Included

PRODUCTION in the United States surged in the first quarter of 2002, while final sales slowed, according to the "preliminary" estimates of the national income and product accounts (NIPA's). Real gross domestic product (GDP) increased 5.6 percent (revised) after increasing 1.7 percent in the fourth quarter of 2001 (table 1 and chart 1). Final sales of domestic product increased 2.0 percent after increasing almost twice as much. (1)

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The preliminary estimate of GDP growth is 0.2 percentage point smaller than last month's "advance" estimate, and the preliminary estimate of final sales growth is 0.6 percentage point smaller. (2) Nevertheless, the advance and preliminary estimates paint pictures of the economy that are similar in many important respects. In both estimates,

* As a result of a substantial slowing in the rate of inventory liquidation, real inventory investment increased substantially and contributed more than 3.0 percentage points to the growth in real GDP (table 2). (3) In the preceding six quarters, inventory investment had subtracted from GDP growth.

* An increase in consumer spending contributed more than 2.0 percentage points to GDP growth in the first quarter. (4) Increased purchases of nondurable goods and of services more than offset decreased purchases of durable goods. In the fourth quarter, purchases of durable goods had increased very sharply, mainly on the strength of an exceptional rise in motor vehicle purchases.

* An increase in government spending contributed more than 1.0 percentage point to GDP growth. An increase in Federal Government spending was concentrated in national defense; an increase in State and local government spending was attributable both to structures and to equipment and software.

* Inventories were liquidated for the fifth consecutive quarter. The ratio of real private inventories to final sales fell from 2.16 to 2.13, a record low level. (5)

* Nonresidential fixed investment continued to decline. Structures decreased for the fourth quarter in a row, and equipment and software decreased for the sixth consecutive quarter.

* The price index for gross domestic purchases increased less than 1.0 percent for the second quarter in a row; it had decreased slightly in the third quarter of 2001.

* Real disposable personal income increased at a double-digit rate after dropping sharply, as current-dollar personal income rose while personal tax payments fell. The drop in tax payments partly reflected the introduction of a new 10-percent tax bracket (as mandated by the Economic Growth and Tax Relief and Reconciliation Act of 2001) and the indexation provisions of current tax law.

* The personal saving rate, which is measured as personal saving as a percentage of current-dollar disposable personal income, rebounded after a fall. (The national saving rate, which is measured as gross saving as a percentage of gross national product and which was unavailable at the time of the advance estimate, was unchanged at 16.6 percent.)

* Real final sales of computers decreased substantially, the third decrease in the past four quarters; real motor vehicle output continued to increase moderately (table 3).

Personal Consumption Expenditures

Real personal consumption expenditures (PCE) increased 3.2 percent in the first quarter, about half the size of its large fourth-quarter increase (table 4 and chart 2). Nondurable goods and services increased more than in the fourth quarter, but durable goods turned down.

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Expenditures for nondurable goods increased 8.3 percent after increasing 2.5 percent. Food, clothing and shoes, and "other" nondurable goods increased more than in the fourth quarter. Energy goods increased after a fourth-quarter decrease.

Expenditures for services increased 3.7 percent after increasing 2.0 percent. The step-up was mainly accounted for by upturns in electricity and gas and in transportation.

Expenditures for durable goods decreased 9.6 percent after surging 39.4 percent, when consumers had responded to very favorable financing terms on new cars and trucks. Furniture and household equipment and "other" durable goods increased about as much as in the fourth quarter.

Several factors frequently considered in the analysis of consumer spending improved somewhat in the first quarter (chart 3). Real disposable personal income jumped sharply for the second time in three quarters. The Index of Consumer Sentiment (prepared by the University of Michigan's Survey Center) rebounded to its highest level in more than a year after declining for seven consecutive quarters. The unemployment rate held steady--albeit at its high fourth-quarter rate of 5.6 percent.

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Private Fixed Investment

Real private fixed investment decreased 2.3 percent in the first quarter after posting larger decreases in the three preceding quarters (table 5 and chart 4). Nonresidential investment decreased less than in the fourth quarter, and residential investment turned up.

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Nonresidential fixed investment. Real nonresidential fixed investment decreased 8.2 percent, its fifth consecutive quarterly drop. Structures and equipment both contributed to the first-quarter decrease.

Structures decreased sharply, though less than in the fourth quarter. (6) Weakness was widespread: Buildings, utilities, and mining and drilling decreased. Each was about 20 percent lower than in the first quarter of 2001.

Like structures, equipment and software also decreased less than in the fourth quarter. Decreases in transportation equipment and "other" equipment were partly offset by increases in industrial equipment and information processing equipment. About two-thirds of the decrease in transportation equipment was accounted for by motor vehicles; aircraft accounted for the rest. The increase in industrial equipment was more than accounted for by engines and turbines. In information processing equipment, computers increased for the second quarter in a row after three quarterly decreases, and communications equipment decreased much less than in recent quarters.

The investment climate has generally been unfavorable in recent quarters. The capacity utilization rate for manufacturing, mining, and utilities edged up in the first quarter, and domestic corporations' profits from current production increased in the past two quarters, but each series remained substantially below the levels it had reached in the recent expansion. Growth of real final sales of domestic product remained below par; it has averaged 1.5 percent over the past four quarters, compared with a 3.5-percent average over most of the recent expansion. Long-term interest rates have trended down only modestly; for example, over the past seven quarters the yield on high-grade corporate bonds has dropped about 1 percentage point, but it has changed little in the past two quarters (chart 5).

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Residential investment. Real private residential investment surged after a 4.6-percent dip in the fourth quarter (table 5 and chart 4). Single-family structures and multifamily structures posted their biggest increases in about 3 years, and "other" structures posted its biggest increase in almost 6 years. The increase in "other" structures mainly reflected a jump in brokers' commissions on home sales.

Inventory Investment

Real inventory stocks decreased $25.7 billion in the first quarter after decreasing $119.3 billion in the fourth quarter (table 6 and chart 6). The smaller decrease in the first quarter than in the fourth contributed 3.47 percentage points to GDP growth in the first quarter. (7)

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Retail trade inventories increased in the first quarter after decreasing in the fourth. Wholesale trade and manufacturing inventories decreased less in the first quarter than in the fourth.

Most of the upturn in retail trade inventories was accounted for by motor vehicle dealers, whose inventories increased after a substantial liquidation in the fourth quarter. Inventories of clothing and of building materials stores also turned up.

In wholesale trade, inventories of durable-goods industries decreased about half as much as in the fourth quarter, and inventories of nondurable-goods industries increased after decreasing. In durable goods, inventories of computer wholesalers turned up, and inventories of electrical goods wholesalers decreased less than in the fourth quarter. In contrast, motor vehicle inventories of merchant wholesalers again decreased moderately. The upturn in inventories of nondurable goods was more than accounted for by farm products and raw materials; in contrast, inventories of drugs and sundries changed little after increasing.