www.bea.gov

GDP Using the Income Approach:

the U.S. Experience

Brian C. Moyer

International Workshop on Household Income, Consumption, and Full Accounting of the Household

SectorMarch 26-28, 2012

Beijing, China

bea.gov 2

Measuring GDP

Expenditures approach GDP = C + I + G + (X-M)

Income approach

GDP = Compensation of Employees +

Gross Operating Surplus + TOPI less

Subsidies

Production or “value added” approach

GDP = Gross Output - Intermediate Inputs

bea.gov 3

GDP by Expenditures and Income

GDP by Expenditures

GDP by Income

bea.gov 4

Income approach

bea.gov 5

Components of income

Compensation of Employees Wages and salaries Employer contributions to pension and insurance

funds

Gross Operating Surplus Corporate profits, proprietors’ income, etc. Consumption of fixed capital

Taxes on Production and Imports less Subsidies Federal excise taxes; State and local sales taxes Subsidies: grants by government to businesses

and government enterprises

bea.gov

Source data

6

Administrative data

Mostly data collected for non-statistical purposes Financial statements Regulatory data Tax agencies

Utilize a wide range of concepts and definitions that may differ significantly from those used in the national accounts

Scope and coverage may differ over time because of changes in business accounting and tax rules

bea.gov

Adjustments to source data

7

Significant adjustments are required to ensure coverage and consistency with national accounts concepts

Misreporting adjustments

Inventory valuation adjustments

Adjustments to exclude capital gains and losses

Capital consumption adjustments

Adjustments to industry classifications

bea.gov 8

Nonfarm proprietors’ income

Total Nonfarm Proprietors' Income compared to Misreported Income

0

200

400

600

800

1982 1988 2001

Bil

lio

ns

of

do

llar

s

Nonfarm proprietors' income Misreported income

Total Nonfarm Proprietors’ Income Compared to Misreported Income

bea.gov 9

Corporate profits

Percent Change of Profits Measures

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

1999 2000 2001 2002 2003 2004 2005 2006 2007

Year

Y/Y

Per

cen

t C

han

ge

S&P Operating Earnings NIPA Profits (current production)

SOI (Total Receipts less Total Deductions) QFR Profits (Mining,MFG,Trade)

bea.gov 10

Wages and salaries

-2

0

2

4

6

8

10

1999 2000 2001 2002 2003 2004 2005 2006 2007

Census, County Business Patterns (CBP)

BLS Qtrly Census of Employment & Wages (QCEW)

IRS, SOI Wages & Salaries

[Growth rts.]Percent Change of Wages and Salaries

bea.gov 11

Wages and salaries

Growth Rates of Real Value Added, 2007

QCEW

CBP

bea.gov 12

Timing of source data

GDP by Income

|||||||||||||||||||||||||

GDP by Expenditures

37% based on early source data

63% based on judgmental trend

23% based on judgmental trend

77% based on early source data

bea.gov 13

Timing of source data

GDP by Income source data - estimates for 2007 2007Judgmental

trendEarly source

data Description of early source data / estimation method  (billions) (percent of GDP by Income)  

     GDP by Income 14,092.5     Compensation of employees 7,863.6     Wages and salaries 6,409.7     Nonsupervisory & production workers 2,411.4   17.1% BLS Current Employment Statistics: payroll survey Supervisory/nonproduction workers 2,909.2 20.6%   Judgmental trend extrapolation based on payroll employment Government 1,089.1   7.7% BLS CES payroll survey employment and ECI Supplements 1,453.8 10.3%   Judgmental trend extrapolation Taxes on production and imports, less subsidies 973.9     Property taxes 396.3 2.8%   Judgmental trend extrapolation Other 577.6   4.1% Federal Monthly Treasury data; Census data for sales taxes

Net interest and misc. payments 964.1 6.8%  

FDIC data for commercial banks; judgmental trend extrapolation based on interest rates for most of the remainder

Business current transfer payments 102.2 0.7%   Judgmental trend extrapolation

Proprietors' income 1,096.4 7.8%  Judgmental trend extrapolation based on BLS payroll data, Census data, and other indicators

Rental income of persons 144.9 1.0%  Mixture of actual source data and judgmental trend extrapolation

Corporate profits 1,193.9   8.5%Census Quarterly Financial Report, FDIC, and Compustat data

Current surplus of government enterprises -6.6 0.0%   Judgmental trend extrapolation Consumption of fixed capital 1,760.0 12.5%   Judgmental trend extrapolation based on BEA capital stocksTotal   62.6% 37.4%

     Percent based on early source data that are conceptually consistent with annual/benchmark data     11.8%

bea.gov

Statistical discrepancy

14

Both GDP by income and GDP by expenditures have measurement strengths and weaknesses Consistency with economic concepts Source data timing Consistency with benchmark data Availability of corresponding price measures

GDP by Expenditures = GDP by Income + Statistical Discrepancy

bea.gov

Income and Production approaches

Income approach

GDP = Compensation of Employees +

Gross Operating Surplus +

TOPI less Subsidies

Production approach

GDP = Gross Output - Intermediate Inputs

15

bea.gov

Income and Production approaches

Value addedi = (Compensationi + Gross

Operating Surplusi + TOPI less

Subsidiesi) = (Gross Outputi –

Intermediate Inputsi)

GDP = ∑i Value addedi

16

bea.gov 17

Supply-Use framework

Mining and Construction

ManufacturingTrade and

TransportationUtilities

Finance, Insurance, and

Real EstateOther

Personal Consumption Expenditure

Private Fixed Investment

Change in Private

InventoriesNet Exports

Government Consumption

and Investment

Mining and Construction

Manufacturing

Trade and Transportation

Utilities

Finance, Insurance, and

Real Estate

Other

Compensation

Taxes on Production and

Imports

Gross Operating Surplus

Total Commodity Output and

Value Added

CO

MM

OD

ITIE

S

Total Industry Output and Final Uses

VA

LUE

AD

DE

D

FINAL USESINDUSTRIES

bea.gov 18

Quality weighting

Reliability indicators assigned to components of intermediate inputs and gross operating surplus by industry—in most cases, coefficients of variation

Less reliable components adjust more; more reliable components adjust less

bea.gov 19

Quality weighting

59,000 60,000 61,000 62,000 63,000 64,000 65,000 66,000 67,000

Value added (Millions of dollars)

Income-based

Combined

Production-based

bea.gov 20

Looking forward …

Research on combining GDP by expenditures and GDP by income based on reliability of underlying source data

Research on the role of capital gains and losses in financial profits

Improved consistency across source data: data synchronization

New Quarterly GDP by industry data based on the Income and Production approaches