U.S. economic performance relative to other group of seven (G-7) members.

• Author: Youssef, Michael
• Position: INTERNATIONAL ECONOMIC COMPARISONS

Economic Growth

The real gross domestic product (GDP) of the United States-the output of goods and services produced in the United States measured in 1996 prices-increased at an annual rate of 3.7 percent in the third quarter of 2004, according to advance estimates by the U.S. Department of Commerce, Bureau of Economic Analysis (BEA). (2) In the second quarter real GDP increased by 3.3 percent, down from the 4.5 percent increase in the first quarter. The major contributors to the increase in real GDP in the third quarter of 2004 were personal consumption expenditure, equipment and software, exports, government spending, and residential fixed investment. The contributions of these components were partly offset by a decline in private inventory investment. Imports increased (accounted for as a subtraction from GDP).

Real personal consumption expenditure increased by 4.6 percent in the third quarter, up from an increase of 1.6 percent in the second. Durable goods purchases increased 16.8 percent in the third quarter compared with a decrease of 0.3 percent in the second. Nondurable goods increased by 3.9 percent, compared with an increase of 0.1 percent in the second; and services expenditures increased by 2.7 percent, the same as in the second quarter. Real nonresidential fixed investment increased by 11.7 percent in the third quarter, compared with an increase of 12.5 percent in the second. Nonresidential structures increased by 1.4 percent, compared with an increase of 6.9 percent. Equipment and software increased by 14.9 percent in the third quarter compared with an increase of 14.2 percent in the second. Real residential fixed investment increased by 3.1 percent, down from an increase of 16.5 percent in the second quarter.

Real exports of goods and services increased by 5.1 percent in the third quarter of 2004, down from an increase of 7.3 percent in the second. Real imports of goods and services in 2004, second quarter increased by 7.7 percent, compared with an increase of 12.6 percent in the second quarter.

Real federal government consumption expenditure and gross investment increased by 4.6 percent in 2004, third quarter, compared with an increase of 2.7 percent in the preceding quarter. National defense spending increased by 9.3 percent in the third quarter of 2004, following an increase of 4.4 percent in the second. Nondefense spending decreased by 4.7 percent in 2004, third quarter, compared with the second quarter increase of 4.4 percent. Real state and local government consumption expenditures and gross investment decreased by 0.5 percent during 2004, third quarter, compared with an increase of 1.9 percent in the second quarter.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased by 1.8 percent in the third quarter, compared with an increase of 3.5 percent in the second quarter. Excluding food and energy prices, the price index for gross domestic purchases increased by 1.5 percent in the third compared with an increase of 2.5 percent in the second.

In other G-7 economies, the annualized rates of real GDP growth were as follows. In the United Kingdom, the economy grew by 1.5 percent in the third quarter of 2004, and by 3.0 percent during the year through 2004, third quarter. In Germany, the economy grew by 1.9 percent in the second quarter, and by 2.0 percent in the year through the second quarter of 2004. In Japan, the economy grew by 1.3 percent in the second quarter, but grew by 4.2 percent in the year through the second quarter of 2004. In Italy, the economy grew by 1.1 percent in the second quarter, and by 1.2 percent in the year through the second quarter of 2004. In France, the economy grew by 2.8 percent in the second quarter of 2004, and grew at the same rate in the year through the second quarter of 2004. In Canada, the economy grew by 4.3 percent in the second quarter of 2004, but grew by 3.0 percent in the year through the second quarter of 2004. For EU members linked by the euro currency, the euro area, GDP grew by 2.0 percent in the second quarter of 2004, and grew at the same rate in the year through the second quarter of 2004.

U.S. Corporate Profits

The U.S. Department of Commerce in their GDP news release for the second quarter of 2004 reported that corporate profits from current production, with inventory valuation and capital consumption adjustment, increased by $8.3 billion in the second quarter of 2004, down from the $36.5 billion increase in 2004, first quarter; and substantially less than the increases of $72.0 billion in 2003, fourth quarter, and an increase of $70.9 billion in 2003, third quarter. Current-production cash flow, net cash flow with inventory valuation and capital consumption adjustments-the internal funds available to corporation for investment-decreased by $5.7 billion in the second quarter of 2004, down from an increase of $5.9 billion in the first quarter of 2004. (3)

Domestic profits by financial and nonfinancial firms together increased by $28.3 billion in the second quarter of 2004, compared with an increase of $47.0 billion in the first quarter. Domestic profits of financial corporations decreased $7.9 billion in 2004, second quarter, in contrast to an increase of $19.8 billion in the first quarter. Domestic profits of nonfinancial corporations increased by $36.2 billion in 2004, second quarter, compared with an increase of $27.3 billion in the first quarter. In 2004, second quarter, real gross value-added increased and profits per unit of real...