Updated summary NIPA methodologies

Survey of Current Business,  Nov, 2004  

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The Bureau of Economic Analysis has recently improved its estimates of current-dollar gross domestic product (GDP), current-dollar gross domestic income (GDI), and real GDP. These improvements were introduced in the 2003 comprehensive revision of the national income and product accounts (NIPAs) and in the 2004 annual revision of the NIPAs. (1)

This report and the accompanying tables provide a quick guide to the sources of data and the methodologies that are now used to prepare BEA's NIPA estimates.

Current-dollar estimates of GDP and GDI

The components of current-dollar GDP and current-dollar GDI and their values for 2003 are presented in table 1.

Various components and subcomponents of GDP and GDI are listed in the left column (column 1) and are grouped according to the estimation method used by BEA.

The middle column (column 2) provides information about the source of the data and the estimation methods that are used for the comprehensive benchmark revisions and for the annual revisions in nonbenchmark years, noting the major differences. For example, for "most durable and nondurable goods" in personal consumption expenditures (PCE) (the first item in table 1), the table indicates one methodology (commodity flow) for benchmark years and another methodology (retail control) for all other years.

The right column (column 3) includes information only about the advance quarterly estimate, which is prepared about a month after the end of the quarter. Information about the advance estimate rather than about the preliminary or final quarterly estimate is provided because more attention tends to focus on this "first look" at the estimate for a quarter. In addition, only the source data and methods are listed; the number of months of available source data or whether the data will be revised by the source agency are not listed. (2)

Source data

The source data include a variety of economic measures, such as sales or receipts, wages and salaries, unit sales, housing stock, insurance premiums, expenses, interest rates, mortgage debt, and tax collections. For most components, the source data are "value data"; that is, they encompass both the quantity and price data required for current-dollar estimates. In these cases, table 1 only provides an explanation of how the value data are adjusted to derive estimates that are consistent with NIPA definitions and coverage.

For the estimates that are not derived from value data, the table indicates the sources of the quantity and price data that are used to prepare value estimates. The table also notes the major adjustments that are needed to derive estimates that are consistent with NIPA definitions and coverage.

For the current-dollar estimates of GDP, a "physical quantity times price" method is used for several components. For example, the estimate of expenditures on new autos in nonbenchmark years is calculated as unit sales times expenditure per auto (the average list price with options adjusted for transportation charges, sales tax, dealer discounts, and rebates).

For the current-dollar estimates of GDI, two methods are used for several components--an "employment times earnings times hours" method and variations of a "stock of assets/liabilities times an effective interest rate" method.

Some of the source data are used as indicators to interpolate or extrapolate annual estimates. In some cases, the extrapolation and interpolation may be based on trends; in that case, table 1 lists "judgmental trend." (3)

Estimation methods

In some cases, BEA also uses four methods to estimate values--the commodity-flow method, the retail control method, the perpetual inventory method, and the fiscal year analysis method.

The commodity-flow method involves estimating values that are based on various measures of output. For example, personal expenditures on new autos in benchmark years are estimated by using data from the Census Bureau on manufacturers' shipments, and BEA adjusts the data for imports and exports. In general, this method is used to derive estimates of various components of PCE, of equipment and software, and of the commodity detail for state and local government consumption expenditures and gross investment. (4) This method is also used for equipment and software in nonbenchmark years, but it is implemented in an abbreviated form. An even more abbreviated commodity-flow method is used for current quarterly estimates of equipment and software.

The retail control method uses retail sales data, usually compiled by the Census Bureau, to estimate expenditures. (5) It is used for many subcomponents of durable and nondurable goods in nonbenchmark years.

The perpetual inventory method is used to derive estimates of fixed capital stock, which is used to estimate consumption of fixed capital. The method is based on investment flows and a geometric depreciation formula. (6)

The fiscal year analysis method is used to estimate annual and quarterly estimates of consumption expenditures and gross investment by the Federal Government. The estimates of expenditures are calculated by program, that is, by activity by a single line item or by a group of line items in the Budget of the U.S. Government. For most programs, BEA adjusts budget outlays to make them compatible with the NIPAs and classifies the expenditures in the appropriate NIPA category--such as current transfer payments and interest payments--with nondefense consumption expenditures and gross investment determined residually. When a fiscal year analysis is completed, the detailed array of NIPA expenditures by program and by type of expenditure provides a set of control totals for the quarterly estimates. (7)