Estimating the Components of U.S. Quarterly GDP: General methods and special procedures

1. Estimating the Components of U.S. Quarterly GDP: General methods and special procedures Brian C. Moyer Deputy Chief National Income and Wealth Division 10th OECD-NBS Workshop on National Accounts Paris, France November 6-10, 2006

2. Overview of quarterly GDP • Expenditures approach used to estimate quarterly GDP GDP = C + I + G + (X - M) • Quarterly GDP revision cycle • “Advance” estimate • “Preliminary” estimate • “Final” estimate • Annual revision • Comprehensive revision

3. Overview of quarterly GDP • Source data • A wide variety of data are used • Federal agency data—shipments, inventories, construction-put-in-place, prices, etc. • Trade source data—motor vehicle unit sales and prices, consumer spending on services, etc • BEA’s international transactions accounts • Trend-based data also used, especially for an advance estimate • Assumptions about missing data are published • Availability and quality of data improve with each successive revision of the estimate

4. Overview of quarterly GDP

5. Estimating quarterly GDP • Annual current-price estimates are “benchmarked” to the input-output tables in economic census years • Annual current-price estimates are calculated by interpolating between input-output tables and by extrapolating forward from the most recent input-output table with annual indicators

6. Estimating quarterly GDP • Quarterly current-price estimates are calculated by interpolating and extrapolating with seasonally-adjusted quarterly indicators • Detailed constant-price estimates are calculated • Deflation method • Quantity extrapolation method • Direct valuation method

7. Estimating quarterly GDP • Detailed constant-price estimates are aggregated • Fisher chain-type price and volume indexes • Chained-volume estimates • Contributions estimates

8. Estimating quarterly GDP In addition … • For certain components of GDP, special procedures are used to prepare the quarterly estimates • Consumer spending on goods • Private investment in equipment • Change in private inventories

9. Consumer spending on goods • “Retail control method” used to prepare current-price quarterly indicators for consumer spending on goods (excluding motor vehicles) • Quarterly retail trade survey data are available only on an industry basis; estimates of consumer spending must be prepared on a product basis

10. Retail control method • Transformation matrix • System of linear equations that relate retail sales by industry to purchases by product • Based on relationships in economic census year • “Control group” used to extrapolate total consumer spending on goods • Some products are estimated independently • Tobacco • Gasoline and oil • Prescription drugs

11. Private investment in equipment • “Commodity-flow method” used to prepare current-price estimates for detailed components of private investment in equipment • Quarterly data on private investment in equipment are not available; an abbreviated commodity-flow method provides estimates based on the supply and use of commodities

12. Commodity-flow method For a detailed component of private investment in equipment, net supply = shipments + commodity taxes – exports + imports - government purchases – change in inventories private investment in equipment = net supply – intermediate purchases – consumer purchases + margin + transportation costs

13. Change in private inventories (CIPI) • Inventory stocks are reported by firms at “book value” using a variety of accounting methods—LIFO, FIFO, average cost, etc. • For the NIPAs, CIPI must be valued at current cost—that is, the change in book value must be adjusted for holding gains and losses • CIPI can be negative at both the industry and aggregate levels

14. Estimating CIPI • Step 1.—Compute a monthly price index by industry • Weighted average price index that reflects the composition of commodities held in inventory by the industry in a given month • Composition of commodities based on data from the economic census • Commodity price indexes are primarily producer price indexes

15. Estimating CIPI • Step 2.—Compute an end-of-month price index, PEt, by industry Calculated as a two-month moving average of the monthly price index, computed in step 1 • Step 3.—Compute a monthly average price index, PAt, by industry Calculated as a two-month moving average of the end-of-month price index, PEt

16. Estimating CIPI • Step 4.—Compute a monthly cost index, PCt, by industry • Represents the cost of acquiring inventories held by the industry in a given month • In general, inventories are acquired over several months; a “turnover pattern” is applied to the monthly average price index, PAt

17. Estimating CIPI • Step 5.—Compute monthly current-price CIPI by industry • CIPI Non-LIFOt = PAt * [(Bt / PCt) – (Bt-1 / PCt-1)] * (1 - L) where Bt is the book-value stock of inventories and L is the percentage of the inventories valued using the LIFO method • CIPI LIFOt = (Bt - Bt-1) * L • CIPIt = CIPI Non-LIFOt + CIPI LIFOt

18. Estimating CIPI • Step 6.—Compute monthly constant-price CIPI by industry • Calculated as current-price CIPI deflated with the industry-based average monthly price index, PAt Constant-price CIPIt = (CIPIt / PAt) • Constant-price CIPI by industry provides the deflation-level components used to compute Fisher price and volume indexes for major aggregates, including gross private domestic investment and GDP

19. Estimating CIPI • Step 7.—Compute a monthly inventory valuation adjustment, IVAt, by industry • Calculated as the difference between current-price CIPI and the change in book value IVAt = CIPIt – (Bt – Bt-1) • Represents the adjustment needed to remove holding gains or losses

20. Estimating CIPI • Step 8.—Compute constant-price inventory stocks by industry • Calculated by accumulating constant-price CIPI Constant-price inventory stockt = constant-price inventory stockt‑1 + constant-price CIPIt • Constant-price inventory stocks by industry provide the deflation-level components used to compute aggregate chained-volume inventory stocks (using the Fisher chained-index formula) • Changes, over time, in the aggregate chained-volume inventory stocks are the NIPA estimates of chained-volume CIPI