Rapid Estimates of U.S. GDP: Timeliness, Estimating Methods & Accuracy Dave Wasshausen International Seminar on Timeliness, Methodology and Comparability of Rapid Estimates of Economic Trends Ottawa, Canada May 27-29, 2009

2 Timeliness ▪ “Advance” estimates of GDP released toward the end of the first month after the end of the quarter.  Based on partial source data and BEA assumptions  Complete set of expenditures estimates; partial set income estimates  Corporate profits and net interest are not prepared due to insufficient source data

3 Timeliness ▪ Tradeoff between quality and timeliness  Try to strike the appropriate balance between accuracy and timeliness  BEA releases several “vintages” of GDP estimates, each subsequent vintage based on better source data

4 Share of Source Data for Quarterly Estimates of GDP

5 Source Data for Advance Estimate ▪ Three months of source data are available for:  Consumer spending on goods  Shipments of capital goods excluding aircraft  Motor vehicle sales and inventories  Manufacturing durables inventories  Federal government outlays  Consumer, producer and international prices ▪ Only two months of data are available for most other key source data (including construction spending, foreign trade, & remaining inventory series)

6 Estimating Methods ▪ Retail Control Method ▪ Commodity Flow Method ▪ Price-Times-Quantity Method ▪ Judgmental Trend ▪ Imputations

7 Revisions and Accuracy ▪ Revisions and accuracy are related, but not the same  Some of the most inaccurate data have never been revised  Some of the most accurate data are subject to regular revisions ▪ Revisions must be judged against average growth and volatility in growth ▪ Publish regular revision studies (Feb. 2008)

8 Revisions ▪ Single largest source of revisions is updating of seasonal factors ▪ Largest source of revisions in trend growth is changes in concepts, methods, and source data intended to update the accounts and improve accuracy.

9 Accuracy ▪ Current quarterly estimates of real GDP correctly indicate:  Direction of change 98 percent of the time  Whether accelerating or decelerating 74 percent of the time  Whether growth is above, near, or below trend growth more than three-fifths of the time. ▪ Estimates have also been shown to be un- biased, with no identifiable bias from the introduction of real time data

10 Comparisons of Revisions to GDP

11 Revisions to Real GDP estimates Real GDP Growth Rate: Quarters, 2008

12 Revisions to GDP for QII, QIV ▪ Large changes in energy prices (upward in QII, downward in QIV).  Wedge between GDP and Gross domestic purchases prices.  Inventory valuation adjustment. ▪ Difficulty of projecting data for the missing month. ▪ Importance of publishing “key assumptions.”

13 Conclusion ▪ BEA’s goal: Early estimates that provide users with a useful “snapshot” of the economy (in the aggregate and by component) ▪ BEA’s early estimates do a relatively good job providing an overall picture of economic activity. In general, they tell us:  If the economy is expanding or contracting  If growth is accelerating or decelerating  If growth is high or low relative to trend  What major components are contributing to growth  The timing of business cycle peaks and troughs