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Fixed Investment (Line 29)

Fixed investment measures additions to and replacements of private capital brought about through net acquisitions by businesses and nonprofit institutions of durable equipment and structures for business and residential purposes.

Fixed investment expenditures are reflected in GNP in two ways. First, capital investment increases GNP by the value of the asset in the period in which the investment is made. Second, the effects of previous years' fixed investment show up in the products produced with the help of the capital. These products are of all types: consumer goods and services, additional capital goods, exports, and government purchases.

Nonresidential Fixed Investment (Line 30)

Nonresidential fixed investment includes capital expenditures by the business sector and nonprofit institutions for (1) new and replacement construction (e.g., buildings, stores, and warehouses) and (2) producers' durable equipment (e.g., machinery, office equipment, and motor vehicles).

Estimates for nonresidential fixed investment are based on the Bureau of Economic Analysis (BEA) surveys of plant and equipment expenditures by the business sector and on other information such as the sales of producers' durable goods and the value of construction. Adjustments must be made on the basis of other estimates to include investment in agriculture and other businesses not covered by the BEA surveys.

Nonresidential Structures (Line 31)

Fixed investment in nonresidential structures includes all new and replacement business expenditures on such buildings as factories, warehouses, and retail stores; expenditures on farm structures; all private, nonprofit institution expenditures on churches, schools, and hospitals; and all public utility expenditures on such items as railroad tracks, stations, telephone, electric and gas distribution systems. It also includes petroleum and gas well drilling and exploration expenditures. Nonresidential structures generally are buildings which are largely assembled on site rather than manufactured in a factory and shipped to the site.

These estimates differ conceptually from those of the Census Bureau by including the cost of petroleum and natural gas well drilling, brokers' commissions on the sale of structures and net purchases of used structures from government, and by excluding farm dwellings.

Producers' Durable Equipment (Line 32)

Fixed investment expenditures on producers' durable equipment include the new and replacement purchase of automobiles, trucks, various types of machinery, and other equipment used by the private sector in the production of goods and services.

In a given year, expenditures on producers' durables represent approximately two-thirds of total fixed investment by the business sector for capital goods.

Producers' Durable Equipment (Line 32) (Cont'd)

The three largest components within this category are electrical machinery expenditures; trucks, buses, and truck trailers; and passenger cars. In combination, these three components account for about one-third of total investment expenditures on producers' durable equipment.

Residential Structures (Line 33)

Private investment expenditures on residential structures reflect construction put-in-place on new single-family houses, apartments, or other space in which people can maintain separate households. In addition to housing units, this category includes non-housekeeping quarters such as hotels, dormitories, and nurses' homes. These expenditures include farm as well as nonfarm dwelling units. Also included are expenditures for additions and alterations made to these structures. Mobile homes are not in this category. Instead they are included in personal consumption expenditures on durable goods (line 25) if occupied by the owner and in producers' durable equipment (line 32) if rented.

These estimates differ from the residential construction figures published by the Census Bureau by including brokers' commissions on the sale of structures and net purchases of used structures from government, and by the inclusion of farm residences.

Change in Business Inventories (Line 34)

Net Exports of Goods and Services (Line 35)

Change in business inventories, often referred to as inventory investment, represents the value of the increase or decrease in the physical stock of goods held by the business sector valued in current period prices. These inventories are in three stages of production: raw materials, semifinished goods, and finished goods ready for sale or shipment.

An inventory increase is regarded as investment because it represents production not matched by current consumption; an inventory decrease is regarded as "negative investment" because it reflects consumption in excess of current production.

Net exports of goods and services is the balance on goods and services, excluding transfers under military grants, as reported in the U.S. balance-of-payments statistics. Total exports of goods and services are a part of the gross national product, because they are produced by the Nation's economy. At the same time, imports of foreign goods and services are included in the purchases of the various market groups (consumers, governments, business) distinguished in the GNP breakdown. These imports must thus be deducted from the sum of purchases. Adding net exports (exports minus imports) has the same effect on GNP as would the addition of total exports and the subtraction of total imports. When this figure is added to the other categories of purchases (lines 24, 28, and 38), the result is a measure of output attributable to the Nation's economy alone.

See also Balance on goods and services, p. 24.

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Exports of Goods and Services (Line 36)

Imports of Goods and Services (Line 37)

Exports of goods, often referred to as merchandise exports, are valued at their f.a.s. (free alongside ship) price. As such, they include all costs incurred up to the point of loading the goods on the vessel at the domestic port.

Exports of services include items such as ocean and air fares paid to U.S. carriers, insurance, profits earned by U.S. business firms operating abroad, and earnings received from other U.S. owned public and private assets located abroad.

The export figure included in the National Income and Product Accounts is identical to the export figure contained in line 1, table 2, in the U.S. balance of payments. Both figures exclude military grant shipments and reflect balance-of-payments adjustments to the Census Bureau merchandise export figure.

Imports of goods are valued at their f.o.b. (free on board) foreign port market price and, as such, exclude United States import duties, ocean freight, and marine insurance.

Import services include items such as military expenditures by U.S. servicemen abroad, travel expenses, ocean freight and marine insurance paid to foreign carriers and firms, and earnings of foreigners on their investments in the United States. The import figure included in the National Income and Product Accounts is identical to the import figure contained in line 15, table 2 in the U.S. balance of payments. Both figures reflect balance-of-payments adjustments to the Census Bureau merchandise import figures.

Government Purchases of Goods and Services (Line 38)

Government purchases of goods and services are made up of the net expenditures on goods and services by the three levels of government-Federal, State, and local-and the gross investment of government enterprises. Among the items included in government purchases of goods and services are: compensation of government employees, construction expenditures on highways, bridges, and schools, and net purchases of equipment, supplies and services from business and abroad. Government purchases of goods and services are one component of government expenditures, other components are transfer payments to persons, net interest paid, subsidies less current surplus of government enterprises and wage accruals less disbursements.

Federal Government Purchases of Goods and Services

(Lines 39, 40, and 41)

Federal Government purchases of goods and services consist of total Federal purchases for national defense (line 40) and other purchases (non-defense) (line 41).

National defense purchases include those for Department of Defense military functions, military assistance to other nations, development and control of atomic energy, and stockpiling of strategic materials. Department of Defense purchases for military functions and foreign military assistance typically account for over 95 percent of the total national defense expenditures.

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Gross national product expresses in dollars the market value of goods and services produced by the Nation's economy within a specified period of time. It is almost always estimated for a calendar or fiscal year, or for a quarter of a year expressed at an annual rate.

Raw materials, components, and intermediate products are not counted separately in GNP. However, their value is included in the value of finished goods sold to consumers and governments, in investment goods sold to business, or in inventory accumulation.

GNP is a "gross" measure because no deduction is made to reflect the wearing out of machinery and other capital assets used in production. Net national product (NNP) is estimated by subtracting line 22, Capital consumption allowances from GNP.

GNP is generally considered the most comprehensive single measure of economic activity.

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