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Integration, KLEMS and the NIPAs

J. Steven Landefeld, DirectorWorld KLEMS Conference

Harvard University

August 20th, 2010

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Integration: the foundation for KLEMS work

▪ Provide a complete set of accounts for the total economy and various sectors

▪ Ensure consistency in macroeconomic data used in the accounts

▪ Integrated statistics allow users to focus on analysis rather than making adjustments to the data

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Importance of consistent data by Industry

Differences in Growth Rates of Real Value Added, 2007

NOTE: Measures of value added were allowed to increase (decrease) by the difference in wage data between BLSand the Census Bureau.

0

5

10

15

20

25

30

Motor Vehicles Computers Manufacturing Durable Goods

Published Simulated

[Percent]

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Importance of consistent data on Income

-80%

-60%

-40%

-20%

0%

20%

40%

60%

1999 2000 2001 2002 2003 2004 2005 2006 2007

Y/Y

Pe

rce

nt

Ch

an

ge

S&P Operating Earnings SOI (Total Receipts less Total Deductions)

QFR Profits (Mining,MFG,Trade)

Percent Change of Profit Measures

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Integrated and Expanded Accounts

▪ Integrated accounts would include: More complete reconciliation and

balancing of the components of the U.S. accounts produced jointly by BEA, BLS, and the FRB Common concepts

Business sector, non-farm business, etc. Common methods

Seasonal adjustment, extrapolation and interpolation

Common source data Accuracy and consistency vs. historical practice

Common, and or, reconciled business registers and classifications

Expanded data sharing authority

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Integrated and Expanded Accounts

▪ Integrated accounts would include: A complete production account, based on:

Integration of NIPA’s and MFP accounts, with real and nominal values

Estimates of capital services for private sector and addition of complete estimates of capital services for government and nonprofits.

Longer-term: development of output based measures of government and non-profit product.

A complete integration of real and financial accounts, based on: Integration of BEA’s NIPA, Wealth, Balance of

Payments, Industry, and Regional data with the Fed’s Flow of Funds and Balance Sheet Estimates

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Integrated and Expanded Accounts

▪Integrated accounts could be extended to:

R&D, Natural Resources, and Human Capital

Energy-EnvironmentHealth Care, Household Production, and

Pensions

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Current work & plans for further integration

▪ Better integration of BEA Industry and GDP Accounts; quarterly GDP by industry

Quarterly Final Expenditures, Income, and Production-based estimates

http://www.bea.gov/industry/an2.htm

FRB-BEA Annual and Quarterly Estimates: http://www.bea.gov/national/nipaweb/Ni_FedBeaSna

BLS-BEA Annual GDP-MFP Estimates: http://www.bea.gov/national/integrated_prod.htm

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Integrated Production Account: Government and NonProfits

▪ GDP for government and nonprofits is now measured as compensation plus depreciation (capital consumption allowances)

▪ More complete measure of the cost of government and value of capital services would be rental value: Rental Value = rNS + Dep – Expected Capital

Gain Picking an appropriate rate of return is difficult

▪ BEA includes private and government and nonprofit estimates in supplemental total economy production account

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Integrated Production Account

▪ Other adjustments, including Private sector labor (adjusted for labor

composition) Government labor inputs

▪ Such an integrated system enables users to identify the sources of changes in productivity and cross-walk them to GDP and its components: Product Industry Type of income/value-added Gross Output Final sales Intermediate products

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International Integration:

▪ Closing the gap on international inconsistencies: FISIM treatment Valuations in factor, basic, producer

prices used in value added Measuring depreciation Business accounting standards (IFRS

vs. GAAP for R&D) Seasonal adjustment practices Common business registers Software: prices & accounting

treatment

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Variation in software prices

Investment in software. Price indices in recent years. 1995=100

50

60

70

80

90

100

110

120

130

140

1992 1993 1994 1995 1996 1997 1998 1999 2000

SWE

GRC

FIN

SPA

ITA

NDL*

FRA

USA *

CAN *

DEN

AUS

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Variation in capitalized services

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Benefits of International Integration:

▪ Value of consistent macro estimates for coordinated fiscal, monetary, trade, regulatory and tax policies, based on: SNA 2008 IMF Balance of Payments Manual EU Price Manual UN Guidelines on Integrated

Economic Statistics,