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Technical Note
Gross Domestic Product
Fourth Quarter of 2007 (Final)
March 27, 2008
This technical note provides background information about the source data and
estimating methods used to produce the estimates presented in the GDP news release.
The complete set of estimates for the fourth quarter is available on BEA's Web site at
www.bea.gov; a brief summary of "highlights" is also posted on the Web site. In a few
weeks, the estimates will be published in BEA's monthly journal, the Survey of Current
Business, along with a more detailed analysis of the estimates ("GDP and the
Economy").
Sources of Revision to Components of Real GDP
As a result of largely offsetting revisions to inventory investment and PCE for services,
real GDP growth in the fourth quarter was unrevised at 0.6 percent (annual rate).
• Inventory investment was revised down, reflecting the incorporation of newly
available fourth-quarter Census Bureau Quarterly Financial Report data and
revised Census Bureau inventory data for December.
• PCE for services was revised up, mainly reflecting the incorporation of newly
available Quarterly Services Survey data on medical care services from the
Census Bureau and newly available data on gas usage from the Energy
Information Administration.
The price index for gross domestic purchases increased 3.7 percent in the fourth
quarter, a downward revision of 0.2 percentage point from the preliminary estimate. The
implicit price index for imputed financial services was revised down, based on newly
available Call Report data from the Federal Reserve Board, which showed lower
charges to consumers on bank loans than had been previously estimated.
Corporate Profits
Profits from current production decreased $52.9 billion, or 3.3 percent (quarterly rate), in
the fourth quarter, compared with a decrease of $20.5 billion, or 1.2 percent, in the third.
Profits for 2007 were $1,595.2 billion, an increase of 2.7 percent from 2006. Corporate
profits in the national income and product accounts (NIPAs) reflects the income earned
by corporations as a result of current production; the measure is defined as receipts
arising from current production less associated expenses.
Asset write-downs and loan-loss provisions are treated differently in corporate financial
accounting, when compared to BEA reporting of profits from current production in the
NIPAs. In BEA reporting, bad-debt expenses, asset write-downs, and other valuation
changes are not counted as current-period expenses that lower profits. Similarly, loanloss provisions that anticipate possible future losses are not deducted as expenses in
the national accounts and do not reduce NIPA profits. In financial accounting, these
provisions are charged against income and reduce profits. Note, however, that the
quarterly profits estimates are based on source data that do not always separately
identify bad-debt expenses, asset write-downs, and loan-loss provisions, so the
estimates of these adjustments may be incomplete.
As a result of these reporting differences, profit estimates based on corporate financial
accounting can differ markedly from estimates of NIPA corporate profits. In the third and
fourth quarters of 2007, many financial companies announced large asset write-downs
and additions to loan-loss provisions that reduced the reported financial accounting of
profits of these companies. In the derivation of NIPA profits, BEA excluded the impact of
these charges and provisions; as a result, NIPA profits for the third and fourth quarter of
2007 are higher than profits derived from financial accounting reports. Additional
information is available in the FAQ (“How are bad-debt expenses, asset write-downs,
and loan-loss provisions treated in estimating NIPA corporate profits?”) available on
BEA’s Web site at www.bea.gov.
In the fourth quarter, real gross value added of nonfinancial corporate business
increased, unit labor and nonlabor costs increased, and profits per unit of real value
added decreased. Effective with today’s release, the estimates of real gross value
added of nonfinancial corporate business were revised, beginning with 2004, reflecting
the use of a revised deflator for nonfinancial industries from the annual revision of the
GDP-by-industry accounts.
Carol E. Moylan
Chief, National Income and Wealth Division
Bureau of Economic Analysis
(202) 606-9711