Trade Data as Input to U.S. GDP Calculations

1. Trade Data as Input to U.S. GDP Calculations Dave Wasshausen Economist, National Income and Wealth Division, BEA ITDU International Trade Data Conference May 4, 2004, Washington D.C.

2. What are the NIPA’s? • The National Income and Product Accounts (NIPAs) are a set of economic accounts that track economic flows within the U.S. economy. The key NIPA measures are: • Gross domestic product (GDP): Measures the total value of goods and services produced within the U.S. • Gross domestic income (GDI): Measures the incomes earned and costs incurred in that production www.bea.gov

3. NIPA seven-account summary • Domestic Income and Product Account • Private Enterprise Income Account • Personal Income and Outlay Account • Government Receipts and Expenditures Account • Foreign Transactions Current Account • Domestic Capital Account • Foreign Transactions Capital Account www.bea.gov

4. Foreign Transactions in NIPAs • Foreign transactions is the fifth account in a seven account system of integrated accounts (i.e. NIPAs) that provides a comprehensive measure of the nation’s economic activity • Account records transactions of foreign residents with U.S. residents and is essentially a condensed version of BEA’s International Transactions Accounts (ITAs) www.bea.gov

5. Foreign Transactions in NIPAs -- Cont. • Includes transactions for the following: • Goods • Services • Income on assets • Wages • Transfers www.bea.gov

6. Foreign Transactions in NIPAs -- Cont. • ITAs provide the basis for NIPA foreign transactions • Conceptual and statistical differences exist and are reconciled in NIPA table 4.3B www.bea.gov

7. Foreign Trade in GDP: Flow of Estimates • Goods exports/imports processed by Census’ Foreign Trade Division (FTD) • Services exports/imports processed by BEA’s Balance of Payments Division (ITAs) • BEA’s BPD adjusts Census’ goods estimates to conform to ITA conventions • BEA's National Income and Wealth Division (NIWD) adjusts ITA estimates to conform to NIPA basis • NIWD develops estimates of real exports and real imports by adjusting for price change www.bea.gov

8. Notable Reconciliation Items • Territorial adjustment: ITAs include U.S. territories, Puerto Rico, and the Northern Mariana Islands as part of the U.S. The NIPAs define these as part of the rest of the world • Services furnished without payment by financial intermediaries except life insurance carriers included in NIPAs • Borrower services • Depositor services www.bea.gov

9. Foreign Trade in GDP • Traditional expenditure (or product-side) approach identity for measuring gross domestic product (GDP): GDP = C + I + G + X - M Where: C = Personal consumption expenditures I = Gross private domestic investment G = Government consumption expenditures and gross investment X = Exports M = Imports www.bea.gov

10. Expenditure components of GDP (2003) [Billions of dollars] Consumption GDP = C + I + G + X - M Government Investment Imports Exports www.bea.gov

11. Foreign Trade in GDP--Cont. • GDP measures the market value of the goods and services produced by labor and property located in the U.S. • C, I, and G reflect purchases of goods and services regardless of where they are produced • Subtracting imports (M) is necessary to reduce total expenditures (C, I, G, and X) to domestic output www.bea.gov

12. Foreign Trade in GDP--Cont. • Consider the following examples that illustrate how imports are reflected in expenditure categories: • Retail sales, which are the basis for personal consumption expenditures (C) for goods, include goods that are produced outside the U.S. • Estimates for private fixed investment (I) in equipment and software are prepared using the commodity-flow technique, whereby we explicitly add imports to domestic shipments www.bea.gov

13. Foreign Trade in GDP--Cont. • A special adjustment is made in PCE for “net foreign travel.” For example, a European visiting the U.S. purchases jewelry. The transaction is recorded in three places: • Exports of travel increases • PCE net foreign travel decreases • PCE jewelry sales increases • GDP increases by the value of the jewelry and PCE is unaffected www.bea.gov

14. Foreign Trade in GDP--Cont. • Similarly, a U.S. resident visiting Europe purchases jewelry: • Imports increases • PCE net foreign travel increases • GDP is unchanged www.bea.gov

15. Example • Assume the trade deficit widens. What does that mean for GDP? • Exports are unchanged and imports of software • Private fixed investment in software • Imports (which are a subtraction) • GDP is unaffected! www.bea.gov

16. GDP vs GNP • Gross national product (GNP) is the market value of goods and services produced by labor and property supplied by U.S. residents = GDP + Income Receipts - Income Payments • The difference between gross domestic product and gross national product is net receipts of income from the rest of the world www.bea.gov

17. Real Foreign Trade in GDP • Real (adjusted for price change) exports and imports (Q) primarily reflect nominal estimates (E) that have been deflated with a price index (P): Q = E ÷ P • Price indexes used to deflate trade in goods are primarily derived from Bureau of Labor Statistic (BLS) export/import price indexes www.bea.gov

18. Real Foreign Trade in GDP--Cont. • Price indexes used to deflate trade in services are derived from a variety sources, including: • BLS export/import price indexes • BLS producer price indexes • BLS consumer price indexes • Foreign country consumer price indexes • NIPA (aggregate) implicit price deflators • BEA defense price indexes www.bea.gov

19. Real Foreign Trade in GDP--Cont. • Some import price indexes are explicitly adjusted for exchange rates, including travel and direct defense expenditures www.bea.gov

20. Importance of Foreign Trade in GDP • Estimates are large and growing! • In 2003: • NIPA current-dollar exports grew 4.2% to over $1 trillion (real exports grew 2.0%) • NIPA current-dollar imports grew 7.7% to over $1.5 trillion dollars (real imports grew 4.0%) www.bea.gov

21. GDP and Outsourcing • Import component most relevant to outsourcing is the business, professional, and technical services category, which rose 16 percent (current-dollars) in 2003 • No evidence of a systematic bias in the estimates of net exports in GDP. www.bea.gov

22. Comparing BEA’s Estimates to Other Estimates • Use caution when comparing BEA estimates to data produced by trade associations or by foreign governments: • May not be consistent with international statistical standards • Concept of “resident” may differ www.bea.gov

23. Imports of Services: Additional Perspectives • Real imports of services have been rather flat since 2000, which largely reflects declines in travel and passenger fares • The NIPA price index for imports of services increased 7.4 percent in 2003 reflecting increases in the price indexes for travel (11.6%), other transportation (12.9%) and direct defense expenditures (17.9%) www.bea.gov

24. For More Information • Prepared a set of Q & A’s that was posted on the BEA website • Additional related information can be found in “A Note on Patterns of Production and Employment by U.S. Multinational Companies,” published in the March Survey of Current Business www.bea.gov