Washington, DC…Real gross domestic product — the output of goods and services produced by labor and property
located in the United States — increased at an annual rate of 3.1 percent in the fourth quarter of 2010,
(that is, from the third quarter to the fourth quarter), according to the “third” estimate released by the
Bureau of Economic Analysis. In the third quarter, real GDP increased 2.6 percent.

The GDP estimate released today is based on more complete source data than were available for
the “second” estimate issued last month. In the second estimate, the increase in real GDP was 2.8
percent (see “Revisions” on page 3).

The increase in real GDP in the fourth quarter primarily reflected positive contributions from
personal consumption expenditures (PCE), exports, and nonresidential fixed investment that were partly
offset by negative contributions from private inventory investment and state and local government
spending. Imports, which are a subtraction in the calculation of GDP, decreased.

The fourth-quarter acceleration in real GDP primarily reflected a sharp downturn in imports, an
acceleration in PCE, an upturn in residential fixed investment, and an acceleration in exports that were
partly offset by downturns in private inventory investment, in federal government spending, and in state
and local government spending, and a deceleration in nonresidential fixed investment.

Final sales of computers added 0.35 percentage point to the fourth-quarter change in real GDP
after adding 0.29 percentage point to the third-quarter change. Motor vehicle output subtracted 0.27
percentage point from the fourth-quarter change in real GDP after adding 0.49 percentage point to the
third-quarter change.

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FOOTNOTE.–Quarterly estimates are expressed at seasonally adjusted annual rates, unless otherwise
specified. Quarter-to-quarter dollar changes are differences between these published estimates. Percent
changes are calculated from unrounded data and are annualized. “Real” estimates are in chained (2005)
dollars. Price indexes are chain-type measures.

This news release is available on BEA’s Web site along with the Technical Note and Highlights
related to this release.
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The price index for gross domestic purchases, which measures prices paid by U.S. residents,
increased 2.1 percent in the fourth quarter, the same increase as in the second estimate; this index
increased 0.7 percent in the third quarter. Excluding food and energy prices, the price index for gross
domestic purchases increased 1.1 percent in the fourth quarter, compared with an increase of 0.4 percent
in the third.

Real personal consumption expenditures increased 4.0 percent in the fourth quarter, compared
with an increase of 2.4 percent in the third. Durable goods increased 21.1 percent, compared with an
increase of 7.6 percent. Nondurable goods increased 4.1 percent, compared with an increase of 2.5
percent. Services increased 1.5 percent, compared with an increase of 1.6 percent.

Real nonresidential fixed investment increased 7.7 percent in the fourth quarter, compared with
an increase of 10.0 percent in the third. Nonresidential structures increased 7.6 percent, in contrast to a
decrease of 3.5 percent. Equipment and software increased 7.7 percent, compared with an increase of
15.4 percent. Real residential fixed investment increased 3.3 percent, in contrast to a decrease of 27.3
percent.

Real exports of goods and services increased 8.6 percent in the fourth quarter, compared with an
increase of 6.8 percent in the third. Real imports of goods and services decreased 12.6 percent, in
contrast to an increase of 16.8 percent.

Real federal government consumption expenditures and gross investment decreased 0.3 percent
in the fourth quarter, in contrast to an increase of 8.8 percent in the third. National defense decreased
2.2 percent, in contrast to an increase of 8.5 percent. Nondefense increased 3.7 percent, compared with
an increase of 9.5 percent. Real state and local government consumption expenditures and gross
investment decreased 2.6 percent, in contrast to an increase of 0.7 percent.

The change in real private inventories subtracted 3.42 percentage points from the fourth-quarter
change in real GDP, after adding 1.61 percentage points to the third-quarter change. Private businesses
increased inventories $16.2 billion in the fourth quarter, following increases of $121.4 billion in the third
quarter and $68.8 billion in the second.

Real final sales of domestic product — GDP less change in private inventories — increased 6.7
percent in the fourth quarter, compared with an increase of 0.9 percent in the third.

Gross domestic purchases

Real gross domestic purchases — purchases by U.S. residents of goods and services wherever
produced — decreased 0.2 percent in the fourth quarter, in contrast to an increase of 4.2 percent in the
third.

Gross national product

Real gross national product — the goods and services produced by the labor and property
supplied by U.S. residents — increased 2.8 percent in the fourth quarter, compared with an increase of
2.3 percent in the third. GNP includes, and GDP excludes, net receipts of income from the rest of the
world, which decreased $10.5 billion in the fourth quarter after decreasing $7.1 billion in the third; in the
fourth quarter, receipts increased $21.1 billion, and payments increased $31.5 billion.
Current-dollar GDP

Current-dollar GDP — the market value of the nation’s output of goods and services — increased
3.5 percent, or $126.3 billion, in the fourth quarter to a level of $14,871.4 billion. In the third quarter,
current-dollar GDP increased 4.6 percent, or $166.4 billion.

Revisions

The upward revision to the percent change in real GDP primarily reflected upward revisions to
private inventory investment and to nonresidential fixed investment that were partly offset by a
downward revision to exports of goods and services.

Advance Estimate Second Estimate Third Estimate
(Percent change from preceding quarter)

Real GDP…………………………. 3.2 2.8 3.1
Current-dollar GDP………………… 3.4 3.2 3.5
Gross domestic purchases price index… 2.1 2.1 2.1

2010 GDP

Real GDP increased 2.9 percent in 2010 (that is, from the 2009 annual level to the 2010 annual
level), in contrast to a decrease of 2.6 percent in 2009.

The increase in real GDP in 2010 primarily reflected positive contributions from private
inventory investment, exports, personal consumption expenditures (PCE), nonresidential fixed
investment, and federal government spending. Imports, which are a subtraction in the calculation of
GDP, increased.

The upturn in real GDP primarily reflected upturns in exports, in nonresidential fixed
investment, in PCE, and in private inventory investment and a smaller decrease in residential fixed
investment that were partly offset by an upturn in imports.

The price index for gross domestic purchases increased 1.3 percent in 2010, in contrast to a
decrease of 0.2 percent in 2009.

Current-dollar GDP increased 3.8 percent, or $541.4 billion, in 2010. In contrast, current-dollar
GDP decreased 1.7 percent, or $250.1 billion, in 2009.

During 2010 (that is, measured from the fourth quarter of 2009 to the fourth quarter of 2010),
real GDP increased 2.8 percent. Real GDP increased 0.2 percent during 2009. The price index for gross
domestic purchases increased 1.2 percent during 2010, compared with an increase of 0.5 percent during
2009.

Corporate Profits

Profits from current production (corporate profits with inventory valuation and capital
consumption adjustments) increased $38.2 billion in the fourth quarter, compared with an increase of
$26.0 billion in the third quarter. Current-production cash flow (net cash flow with inventory valuation
adjustment) — the internal funds available to corporations for investment — increased $36.9 billion in the
fourth quarter, in contrast to a decrease of $68.4 billion in the third.

Taxes on corporate income decreased $1.3 billion in the fourth quarter, in contrast to an increase
of $23.8 billion in the third. Profits after tax with inventory valuation and capital consumption
adjustments increased $39.5 billion in the fourth quarter, compared with an increase of $2.2 billion in
the third. Dividends increased $8.9 billion, compared with an increase of $8.1 billion; current-
production undistributed profits increased $30.6 billion, in contrast to a decrease of $5.9 billion.

Domestic profits of financial corporations increased $57.7 billion in the fourth quarter, compared
with an increase of $34.6 billion in the third. Domestic profits of nonfinancial corporations decreased
$10.1 billion in the fourth quarter, in contrast to an increase of $0.3 billion in the third. In the fourth
quarter, real gross value added of nonfinancial corporations increased, and profits per unit of real gross
value added decreased. The decrease in unit profits reflected a decrease in unit prices that more than
offset a slight decrease in unit labor costs. Unit nonlabor costs were unchanged.

The rest-of-the-world component of profits decreased $9.4 billion in the fourth quarter,
compared with a decrease of $8.9 billion in the third. This measure is calculated as (1) receipts by U.S.
residents of earnings from their foreign affiliates plus dividends received by U.S. residents from
unaffiliated foreign corporations minus (2) payments by U.S. affiliates of earnings to their foreign
parents plus dividends paid by U.S. corporations to unaffiliated foreign residents. The fourth-quarter
decrease was accounted for by a larger increase in payments than in receipts.

Profits before tax with inventory valuation adjustment is the best available measure of industry
profits because estimates of the capital consumption adjustment by industry do not exist. This measure
reflects depreciation-accounting practices used for federal income tax returns and is affected by the
bonus depreciation provisions of the Tax Relief, Unemployment Insurance Reauthorization and Job
Creation Act of 2010 (see below). According to this measure, domestic profits of financial corporations
increased and profits of nonfinancial corporations decreased. The decrease in nonfinancial corporations
reflected decreases in all industries shown, except for small increases in some detailed manufacturing
industries. The largest decrease was in wholesale trade.

Profits before tax decreased $48.3 billion in the fourth quarter, in contrast to an increase of $57.5
billion in the third. The before-tax measure of profits does not reflect, as does profits from current
production, the capital consumption and inventory valuation adjustments. These adjustments convert
depreciation of fixed assets and inventory withdrawals reported on a tax-return, historical-cost basis to
the current-cost measures used in the national income and product accounts. The capital consumption
adjustment increased $153.5 billion in the fourth quarter (from -$169.3 billion to -$15.8 billion),
compared with an increase of $1.4 billion in the third. The inventory valuation adjustment decreased
$66.8 billion (from -$36.4 billion to -$103.2 billion), compared with a decrease of $32.9 billion.

Provisions of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of
2010

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, signed
into law December 17, 2010, provided a retroactive increase in bonus depreciation from 50 percent to
100 percent for qualified purchases made between September 9, 2010 and December 31, 2011.

Profits from current production are not affected because they do not depend on the depreciation-
accounting practices used for federal income tax returns; rather, they are based on depreciation of fixed
assets valued at current cost and using consistent depreciation profiles based on used-asset prices. The
additional depreciation provided for by the Act is estimated to have increased tax-based depreciation
expenses of corporations in the fourth quarter by $156.0 billion (annual rate) and reduced profits before
tax, which is based on earnings reported on tax returns, by the same amount. The capital consumption
adjustment, which is the difference between the depreciation specified in the tax code and the
depreciation underlying profits from current production, also increased by the same amount because the
Act raised tax depreciation by $156.0 billion. (Fourth-quarter profits tax liability was reduced by $36.1
billion, and profits after tax were reduced by $119.9 billion.)

As with corporate profits from current production, nonfarm proprietors’ income with capital
consumption and inventory valuation adjustments (table 10) was not affected by the provisions of the
act; nonfarm proprietors’ income without these adjustments was reduced, and the related capital
consumption adjustment was increased by the same amount. The other major national income and
product account components and aggregates shown in this release were not affected.

Further information is available in FAQ #955: “How did the Small Business Jobs and Credit Act of 2010
and the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 impact the current
quarterly estimates of the capital consumption adjustment for domestic business in 2010?”

Corporate profits in 2010

Profits from current production increased 29.2 percent in 2010, in contrast to a decrease of 0.4
percent in 2009. Domestic profits increased 37.0 percent, compared with an increase of 6.4 percent.
The rest-of-the-world component of profits increased 8.9 percent, in contrast to a decrease of 14.3
percent.

Taxes on corporate income increased 63.4 percent in 2010, in contrast to a decrease of 17.3
percent in 2009. Profits after tax with inventory valuation and capital consumption adjustments
increased 20.4 percent, compared with an increase of 5.1 percent. Dividends increased 1.9 percent, in
contrast to a decrease of 9.9 percent; current-production undistributed profits increased 67.3 percent,
compared with an increase of 81.3 percent.

According to the measure of profits before tax with inventory valuation adjustment, domestic
profits of both financial and nonfinancial corporations increased in 2010. The increase in nonfinancial
corporations reflected increases in all industries shown except chemical products and food and beverage
and tobacco products. Within manufacturing, the largest increase was in computer and electronic
products.

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