What Business?

Abstract

U.S. Department of Commerce, Bureau of Economic Analysis VxKOSS national product in constant prices increased 7.9 percent at an annual rate in the first quarter, about the same as the fourth quarter expansion (chart 1). In current prices, the increase was 14.3 percent, or $40.6 billion. The rate of price change as measured by the implicit GNP deflator was 6 percent, a disturbingly high figure, compared with 2.8 percent in the fourth quarter. Part of that acceleration was caused by a January increase in Federal pay schedules; such increases enter the national accounts as straight increases in the price of government product. The implicit price deflator for private product, which was unaffected by the pay raise, increased at a rate of 5.5 percent in the first quarter compared with 2.8 percent in the fourth, with much of the acceleration caused by sharply rising food prices. The major GNP components generally registered first quarter advances that were sizable but not out of line with recent trends or with widely held expectations. The exceptions were consumption spending, which increased very steeply not only in current prices but also in real terms, and inventory accumulation, which is estimated to have declined from the fourth quarter to the first. Business fixed investment, residential investment, and government purchases all increased quite solidly. Higher employee compensation—due to both pay raises and employment growth—accounted for some $5 billion of the $7% billion increase in combined Federal, State, and local government purchases. The Federal pay raise in January was responsible for about $2 billion of the advance in compensation. Employment grew substantially in the first quarter, as measured both by the household survey of the civilian population and by the survey of nonfarm establishments. The first quarter gains in the employment aggregates reflected continuation of the strong growth that has marked the past year (table 1). However, growth of the civilian labor force has slowed, at least partly because the reduction of the armed forces is over; that reduction augmented the natural growth of the civilian population and thus of the civilian labor force. Because the growth of employment in the first quarter was faster than the growth of the labor force, the unemployment rate dropped measurably— from 5.3 percent in the fourth quarter to 5.0 percent in the first. The rate had