Update on NIPA Projects and Plans Brent Moulton BEA Advisory Committee Washington, DC May 6, 2011

2 Outline ▪ Overview of recent NIPA-related projects. ▪ Plans for the 2011 NIPA annual revision. ▪ Plans for the 2013 comprehensive NIPA revision.

3 Tracking the economy ▪ Tracking the recession and recovery:  Changes in government programs and tax policies.  Web pages on “Federal Recovery Programs and BEA Statistics.” ▪ Integrated macroeconomic accounts  An integrated presentation of the NIPAs and the flow of funds accounts.  Quarterly and annual estimates.  Joint release on BEA and FRB Web sites.  Plans to provide additional information for several financial subsectors.

4 Expanding scope ▪ BEA’s first-ever territorial GDP estimates  Released in 2010 and updated in  American Samoa, the Commonwealth of the Northern Mariana Islands, Guam, and the U.S. Virgin Islands. ▪ Reconciliation of health care expenditures in the National Health Accounts and in GDP (September 2010 Survey of Current Business).

5 Documentation: NIPA handbook ▪ Concepts and Methods of the U.S. National Income and Product Accounts  Seven chapters have been published, covering:  Concepts, source data, and estimating methods,  Personal consumption expenditures,  Private fixed investment,  Change in private inventories.  Additional chapters in progress:  Foreign trade,  Government consumption expenditures and gross investment,  Compensation of employees.

NIPA Annual Revision ▪ In the June 2008 Survey of Current Business, BEA announced that it would undertake “flexible annual revisions” that include revisions for longer periods than the traditional 3-year period. ▪ In this year’s NIPA annual revision, scheduled for release on July 29, 2011, some series will be revised back to 2003.

7 Why flexible annual revisions? ▪ To incorporate important statistical and conceptual improvements sooner. ▪ To incorporate source data for longer periods than the 3 most recent years.  Substantive effect on a major aggregate.  Provides a significantly clearer picture of economic activity. ▪ To strengthen the integration of BEA’s national, industry, and other accounts.

8 Revisions pre-2008 ▪ Personal consumption expenditures  Revised back to  Merchandise line data from the economic census.  Benchmarked retail trade and service annual survey data. ▪ Petroleum imports  Revised back to  Improved seasonal adjustment methodology. ▪ Private fixed investment, exports, and imports  Revised back to  Quality-adjusted Federal Reserve Board price indexes for communications equipment.

Annual Revision: Other changes ▪ Personal income and outlays tables  Updated presentation of government social benefits to focus on the largest and most significant programs. ▪ PCE deflators for property and casualty insurance services  Improved consistency in the measures of real insurance services. ▪ PCE for portfolio management and investment advice services  Based on the Census quarterly services survey starting with the first quarter of 2011.

NIPA Comprehensive Revision ▪ Will incorporate the 2007 Benchmark Input-Output Accounts and other benchmark source data. ▪ Conceptual revisions based on the recent update of international guidelines: System of National Accounts 2008 (SNA). ▪ Conceptual changes currently planned for 2013:  Capitalizing research and development.  Capitalizing entertainment, literary, and artistic originals.  Accrual measures for defined-benefit pension plans.  Improved measures of financial services.  New approach for measuring the costs of ownership transfer.

11 Capitalizing research and development ▪ BEA’s R&D satellite account  Work began in  Latest results (December 2010 Survey) show GDP for 2007 would be raised $396.3 billion (or 2.8 percent) by treating R&D as investment. ▪ Steps toward treating R&D as investment in the NIPAs:  Prices,  Capital stock and depreciation,  Business income,  Government spending,  Quarterly investment estimates.

12 Entertainment, literary and artistic originals ▪ Original films, sound recordings, manuscripts, etc., that can be used for the production and sale of copies. ▪ SNA recommends that they be capitalized. ▪ BEA staff (especially Rachel Soloveichik) are developing estimates for several types of originals, including:  Motion pictures,  Television programs,  Music compositions and recordings,  Books.

13 Defined benefit pension plans ▪ Current NIPA treatment:  Employer contributions are compensation.  Interest and dividends received by pension funds are personal income. ▪ Problems with current treatment:  Underfunded and unfunded pensions.  Volatility of contributions.  Disconnect with economic principles.

14 New approach to pension plans ▪ SNA recommends accrual estimates based on actuarial estimates. ▪ Article in August 2009 Survey (Reinsdorf & Lenze) shows how accrual approach can be applied. ▪ For private plans – accrual approach results in less volatility in compensation. ▪ Larger effects for government plans (because of underfunding):  Lower compensation.  Higher interest.

15 Measures of financial services ▪ For financial services furnished without payment, expected credit losses will be excluded from borrower services. ▪ Avoid spurious volatility in splitting total financial services without payment between depositor and borrower services. ▪ Extend the reference rate approach (currently used for commercial banks) to thrifts.

16 Costs of ownership transfer ▪ Real estate brokers commissions are currently classified as fixed investment. ▪ The revised SNA clarified the scope of ownership transfer costs and provides a more consistent accounting of how they should be reflected in measures of capital stock.  Depreciate costs of acquiring an asset over the period the asset is expected to be held by the purchaser (rather than over the whole life of the asset).