Relationship and Consistency between BEA’s Industry and National Economic Accounts

1. Relationship and Consistency between BEA’s Industry and National Economic Accounts Jiemin Guo OECD-NBS Workshop Beijing, China September 21-24, 2007

2. Highlights • Benchmarking National Accounts to Economic Census Data is fundamental step in preparing BEA estimates • BEA has made significant steps toward a more fully integrated set of National and Industry Accounts • U.S. statistical system has rich economic data sets on income and expenditures to prepare current-period National Accounts

3. Benchmark I-O Accounts Benchmark I-O accounts prepared in four broad steps • Step 1. Estimate output controls • Step 2. Estimate inputs and value added • Step 3. Estimates final uses and domestic supply • Step 4. Balance the make and use tables.

4. Input-Output Make Table (1997, billions of dollars)

5. Input-Output Use Table (1997, billions of dollars) Total Commodity Output = Intermediate Industry Purchases + Final Uses

6. Input-Output Use Table(1997, billions of dollars) Industry Output Commodity Output • Total Industry Output = Intermediate Industry Purchases • + Value added

7. Estimate Output • Commodity and industry output controls form perimeter of table • Primarily economic census based • BEA augments data • Areas not covered by Census • Imputations • Misreporting • Non-filers

8. Estimate Intermediate Inputs and Value Added • Intermediates based on input category controls • Census data on groups of commodities purchased by each industry (e.g., materials consumed) • Variety of additional data from other Federal statistical agencies, trade associations, and other sources • Value added estimates • Compensation and taxes on production and imports, less subsidies based on economic census data • Gross operating surplus is a residual estimate in benchmark (initially); it is “reconciled” with data on industry-distributions of business income from National Accounts.

9. Estimate Final Uses and Domestic Supply • Final uses are estimated using two methods • Direct method from economic census data • Indirect method: “commodity flow” method used when direct information is not available; based on ratios of domestic supply • Finalize expenditure estimates through “reconciliation” with National Accounts • comparison of National Accounts time series with “best-level” from benchmark

10. Example of Commodity Flow using Census Data(1997, in millions of dollars) Personal Consumption Expenditure (PCE) = Domestic Supply * Commodity Flow 3548 = 3899 * 0.91

11. Balance the I-O tables • Initial estimates do not necessarily lead to a balanced table (i.e., industry and commodity output do not necessarily equal) • The make and use tables are balanced by adjusting “free” cells (i.e., cells that are not based on Census data) • Traditionally, the benchmark use table balanced with a bi-proportional scaling procedure • The 2002 benchmark table incorporates a generalized least squares approach

12. Benchmarking BEA’s National Accounts The balanced benchmark I-O use table is incorporated into the National Income and Product Accounts (NIPAs) • Benchmark I-O estimates helps set the levels for Personal Consumption Expenditures (PCE), Private Fixed Investment (PFI), and government consumption expenditures and investment • Benchmark I-O provides weights for preparing estimates of changes in private inventories and the type-of-product detail for state and local government consumption expenditures and gross investment

13. Benchmarking BEA’s Annual Industry Accounts (AIAs) Estimates from the Benchmark I-O accounts and NIPAs are incorporated into the AIAs • Balanced make and use tables form the basis for preparing the annual I-O accounts • Annual I-O accounts control to major expenditure components in the NIPAs • Industry distributions of Gross Domestic Income are used as initial extrapolators for annual value added • NIPA price deflators are used to prepare quantity and price indexes in the GDP-by-industry accounts

14. BEA’s Annual “Feedback” Loop • Investigation into differences between final use estimates from the Annual I-O accounts and NIPAs • Balanced annual I-O framework provides a cross-check on NIPA annual extrapolations of final uses • Objective is to inform NIPAs on the levels of final expenditures during “non-benchmark” years

15. Relationships Among BEA’s National and Industry Accounts . VA consistent with that of GDP-by-industry. Distribution of VA based on revised 1997 BM; VA growth based on GDI growth Distribution of VA based on revised 1997 BM; VA growth based on GDI growth Revised 1997 Benchmark I-O accounts GDP-by-industry accounts Annual I-O accounts 1a NIPAs Early info from 2002 Econ Census will be incorporated into relationship 7. GDP based on Expenditures and income approaches only.

16. Conclusions • Importance of Benchmarking BEA’s National and Industry Accounts • BEA has taken important steps toward fuller integration; however, we recognize limitations in moving too quickly in this area (e.g., better current-period income and expenditure data v. industry data)

17. Questions or Comments Jiemin.Guo@bea.gov Erich.Strassner@bea.gov George.Smith@bea.gov Mary.Streitwieser@bea.gov