Frequently Asked Questions
Guidelines for Citing BEA Information | ID: 1012 | Created: Sep-20-2012
BEA’s gross domestic product (GDP) estimates reflect the effects of this summer’s extreme hot weather and drought in the Midwest on farm production. For the most part, these effects are embedded in the regular source data that are used by BEA. Where they are not, BEA prepares adjustments to account for the effects.
Among the expenditure-side components of GDP the drought directly affects the estimates of the change in farm inventories (a component of the change in private inventories) and indirectly affects other components of GDP, such as personal consumption expenditures and exports. Because many of the effects are in the source data but are not separately identified, BEA does not attempt to quantify the total impact of events such as this year’s drought. Some information, however, is available about the effects on crop inventories, and the following paragraphs summarize the source data, the adjustments, and the expected impacts on the crop inventory estimates based on this.
The production of agricultural crops, such as corn and soybeans, is reflected in the expenditure-side estimates of the GDP component, change in farm inventories. Annual changes in farm inventories of crops are estimated as crops harvested in the year and available for sale, less crops sold in the period, plus net Commodity Credit Corporation (CCC) loan transactions. Because crop production takes place throughout the year, even if crops are harvested only once a year, BEA’s estimates spread the value of crop output throughout the year. Thus, for each quarter, the change in farm inventories of crops is calculated as the estimated crop output allocated to that quarter, less crops sold, plus net CCC loan transactions.
The regular source data used by BEA for estimating farm output and income are the U.S. farm income and wealth statistics, which are published by the Economic Research Service (ERS) of the U.S. Department of Agriculture three times a year. These data form the basis for BEA’s estimates of farm output, sales, change in inventories, and farm proprietors’ income. ERS issued farm income statistics on August 28, 2012 that included a forecast of farm income for 2012. The August ERS estimate showed that the change in crop inventories for the year 2012 was revised down $11½ billion (in current dollars) from the farm income statistics that were issued by ERS in February of 2012. Based on this downward revision, BEA updated its estimates of annual real crop output, of real crop sales, and of real crop inventories. These revisions were reflected in the “third” estimate of GDP for the second quarter of 2012, released September 27, and were reflected in the “advance” and “second” estimates of GDP for the third quarter of 2012. On November 29, ERS released updated farm income statistics for 2012 that showed a small downward revision to crop inventory change (in current dollars) for the year. This revision was reflected in the “third” estimate of GDP for the third quarter, released December 20.
Because most of the ERS farm income statistics are annual estimates, BEA has used other ERS reports to adjust the quarterly pattern of crop output to reflect the timing of the effects of the extreme hot, dry weather in the Midwest during June and July. In particular, based on the pattern of revisions to projected corn and soybean output shown in the monthly issues of two ERS reports, Feed Outlook and Oil Crops Outlook, BEA estimated negative impacts on crop inventories for the second and third quarters, with the impact on the third quarter approximately 2½ times that on the second quarter, in current dollars. BEA also anticipates a negative impact for the fourth quarter.1 Estimates of these impacts are presented in the “Technical Note” that BEA issues concurrently with each of the quarterly GDP releases.
For additional information about the methodology used to estimate the impacts of the drought, see the box “Effects of the 2012 Midwest Drought on the NIPA Estimates” in the December 2012 Survey of Current Business.
1BEA used a similar procedure to adjust the quarterly pattern of the 1993 floods and drought; see “Impact of the 1993 Floods and Drought,” Survey of Current Business 73 (September 1993): 2.
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