Economic Report of the President

ment were sharply diminished by the 13.3 percent decline in profitsduring the second quarter of 1980. While aggregate measures ofprofitability and corporate cash flow reflected cyclical weakness, thesemeasures understated the extent of the problem by masking importantdistributional imbalances. In particular, oil and coal industryprofits represent a growing share of the aggregate. From the firstquarter of 1979 to the third quarter of 1980 corporate profits in thepetroleum and coal industries grew from $15.0 billion, or 6.9 percentof total corporate profits, to $22.2 billion, or 11.3 percent.Inventory AccumulationCautious inventory policies continued throughout 1980. Real inventoryaccumulation in the fourth quarter was virtually unchangedfrom its level in the fourth quarter of 1979 and thus had almost noimpact on the overall growth in real GNP over the 4 quarters of1980.Chart 9RATION3.15Real Inventory—Final Sales Ratio,Nonfarm BusinessSEASONALLY ADJUSTED3.103.053.002.952.902.852.80275 y 1968 69 70 71 72 73 74 75 76 77 78 79 80VRATIO OF REAL INVENTORIES AT END OF QUARTER TO REAL FINAL SALES AT MONTHLYRATES.SOURCE: DEPARTMENT OF COMMERCE.As compared with the 1970s, inventory-to-sales ratios remainedrelatively low during 1980 (Chart 9). What was more interesting wasthe rapid response of production to the changes in final sales. As143