Table 2.—Issues and Proposed Actions

Issues, problems, and uses affected Quantitative indicators (e.g., potential size of gap, size of revision, size of component treated differently or added) Statistical source(s) of the problem Proposed actions
Need for new and improved output measures
Difficulties in measuring and defining certain components of real GDP
Uses affected: Analysis of economic growth, especially of economy's long-term, noninflationary growth potential; macroeconomic policy; forecasting; business, budget, and investment planning
Possible understatement of growth, especially in fixed investment; potential for understatement in real GDP growth/1/ Difficulties in measuring quality changes, especially in investment goods Methodology and structure: Extension of quality adjustment of prices used in real GDP, including hedonic work on goods amenable to such measurement: High-tech goods and nonresidential structures.
No quantitative indicator of the difficulties of defining outputDifficulties in defining outputMethodology and structure: Further conceptual work on more difficult-to-measure goods and services.
Revisions to key components of GDP and national income Uses affected: Macroeconomic policy; forecasting; business, budget, and investment planning 1.4-9.4 percentage point (+/-) revisions to quarterly changes (SAAR) for key components of current-dollar GDP:/2/ Change in business inventories, $13 billion
Trade in goods and services, $9 billion
Government purchases, $8 billion
Consumer expenditures for services, $6 billion
Consumer expenditures for goods, $4-$5 billion
1.4-8.5 percentage point (+/-) revisions to quarterly changes (SAAR) for key components of national income
Inability of existing source data used in the quarterly estimates to capture change in the economy Data modification and extension: More frequent updating of sample frames for existing surveys, including trade and manufacturing.
Data extension: More frequent surveys for certain growing sectors such as international trade in services, medical care, and State and local government purchases.
Data extension: Extension of existing surveys such as those for inventories, services, and employee compensation (including bonus payments) to fill gaps in coverage.
Difficulties in seasonal adjustmentMethodology and structure: Improvements in seasonal adjustment for volatile components such as inventories and trade in goods and services.
Errors in projections for missing source dataMethodology and structure: Improvements in projections for components such as inventories, trade in goods and services, and bonus payments.
Overstatement of real GDP growth in recent years (and understatement in earlier years)

Uses affected: Analysis of economic growth, especially of current growth relative to long-term, noninflationary growth; macroeconomic policy; forecasting; business, budget, and investment planning
0-1.2 percentage point overstatement of quarterly rates of change in real GDP (average 1991:I-1994:III, 0.4 percentage point)/3/Substitution bias, specifically the use of fixed weights (1987) inappropriate for the current periodMethodology and structure: Introduction of more current weights for real GDP for current estimates and more appropriate weights for historical estimates.
Outdated and inconsistent view of the structure and organization of production

Uses affected: Federal and State and local tax analysis and budget planning; business location and marketing studies; regional analysis; industrial organization studies; and cross-border analysis of trade effects
For industry classifications, inconsistencies across U.S. industries and incompatibilities among North American countries, with special attention needed for new and emerging industries, service industries, and high-tech industries (for a discussion of quantitative indicators, see text) Outdated and inconsistent industry classification system, source data, and industry accountsMethodology and structure: Develop a new industrial classification system.
Data modification and extension: Implement a new industrial classification system, starting with a restructuring of surveys.
Methodology and structure: Update and better integrate the input-output, industry, gross state product, and GDP estimates within the context of modernizing the accounts along the lines of the new international guidelines.
Need for better measures of investment, savings, and wealth
Extend the concept and update the measurement of investment and wealth/capital stock Uses affected: Analysis of sources of economic growth, productivity, returns to public and private investment; tax and expenditures policies Treating government spending on structures and equipment and government and business spending on computer software as fixed investment would raise investment and reproducible capital stock in national wealth by about 20 percent. Government capital, $2,863 billion
Computer software, $20-$40 billion
Treating other candidates as investment in satellite accounts would raise wealth/capital stock, for example:
R&D capital, $1,050-$1,380 billion
Natural resources, $950-$1,600 billion
Exclusion of certain types of public and private expenditures that contribute to the nation's wealth and productive capacity Methodology and structure: Expand the accounting for investment and wealth/capital stock by (1) inclusion of government spending on structures and equipment and government and business spending on computer software and other intangibles in investment in the national accounts and (2) inclusion of research and development and natural resources in satellite accounts, in the context of modernizing the accounts along the lines of the new international guidelines.
No quantitative indicator of the need to update measurementUse of straight-line depreciationMethodology and structure: Use of conceptually and empirically based depreciation patterns and valuation methods
Need for better integration and measurement of investment, saving, and wealth/capital stocks Uses affected: Analysis of sources of economic growth, productivity, returns to public and private investment, and saving; tax and expenditure policies 3-9 percentage point differences—conceptual and statistical—between NIPA and flow of funds measures of personal saving rates/4/.
Treating government "investment" in GDP consistently with international guidelines would eliminate more than half of the apparent 5.8 percentage point shortfall in U.S. versus European investment rates/5/. For 1993, investment as a percent of GDP: NIPA rate is 13.7 percent; adding government "investment" raises the rate to 16.7 percent.
Average rate for Europe is 19.5 percent.
Lack of complete integration between financial and real accounts
Need to fill gaps in the coverage of international transactions
Gaps in the coverage of international trade in certain goods and services, income, and capital

Uses affected: Analysis of trade, monetary, and regulatory policy; forecasting; business and investment planning
Gaps in key components: Trade in goods and services, as much as $10-$20 billion/6/
Capital flows, as much as $100, and stocks as much as $200 billion/6/
Inability of existing data collection systems to capture new markets and types of goods, services, and financial instruments and intermediaries Data modification and extension: Extension of existing surveys to cover new products, services, and markets.
Methodology and structure: Extension of data exchanges with other countries and central banks.
New data: Development of new surveys such as for financial services and portfolio investment.

1. For a discussion of quantitative indicators, see text.

2. Based on BEA revision studies; see text for details.

3. Based on BEA alternative output and price indexes; see text for details.

4. Based on historical difference between BEA's NIPA measures and the Federal Reserve Board's flow-of-funds estimates; most of the difference between the two series are conceptual, with statistical differences ranging between 0 and 2.9 percentage points over the last 10 years.

5. Calculated from Quarterly National Accounts, compiled by the Organisation for Economic Co-operation and Development. "Europe" includes the 13 countries for which data were published.

6. Based on indicator series and past revisions for similar components.