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Fixed Assets and Consumer Durable Goods

By Shelby W. Herman

AS part of the comprehensive revision of the national income and product accounts (NIPA's), the Bureau of Economic Analysis (BEA) has released new estimates of fixed assets and consumer durable goods (formerly "fixed reproducible tangible wealth") for 1998 and revised estimates for 1925-97. These estimates cover the net stock of equipment and software and of structures owned by business and government and the net stock of durable goods owned by consumers. In addition, as part of the changes to the presentation of the NIPA tables, BEA is introducing a new table that shows the changes in the net stock of produced assets (fixed assets and change in private inventories).1 This table improves the consistency of the NIPA's with international guidelines and is part of BEA's long-term effort to integrate the estimates of stocks and flows.2

The revised estimates incorporate the revised estimates of new investment, of sales of used assets between sectors, and of prices that were released earlier as part of the comprehensive revision. For privately owned assets, investment by type of asset was distributed by industry primarily through the use of data from BEA's benchmark input-output accounts for 1982, 1987, and 1992 and from the 1987 and 1992 Economic Censuses.3 Investment flows were modified to account for sales of used assets between sectors of the economy.

Estimates of the net stock of fixed assets and consumer durable goods are presented in two valuations: Current cost and real cost, which is measured in terms of chain-type quantity indexes. Current-cost valuation includes the effects of both price changes and changes in the physical volume of assets, while the chain-type measures reflect only changes in physical volume, or real changes.4 For 1925-98, the net stock grew at average annual rates of 6.3 percent at current cost and 2.9 percent at real cost (table A). The period of fastest growth for the real-cost measure was 1947-73, when the net stock rose at an average rate of 3.7 percent a year. Growth since 1973 has been slower; the net stock rose at an average rate of 2.8 percent a year in 1973-92 and 2.6 percent a year in 1992-98. In 1992-98, all but one of the components grew more slowly than in 1973-92; the exception was nonresidential equipment and software, which rose at an average rate of 5.1 percent in 1992-98, compared with 3.9 percent in 1973-92.

New NIPA table of changes in net stock of produced assets

The new NIPA table 5.16, which is introduced on page 80 of this issue, provides for the first time an integrated analysis of the changes in the net stock of produced assets from opening balance to closing balance. The table fully accounts for changes in the net stock of produced assets by showing how investment, depreciation, and disaster losses affect the stock and how its value is affected by nominal and real holding gains.

In the table, the sources of change consist of the following: Gross fixed investment, which consists of expenditures for assets that will be used in the production process for more than 1 year; stock reconciliation adjustments, which are deducted from gross investment for differences in timing and in the treatment of margins and brokers' commissions on used assets; "consumption of fixed capital, except disaster losses," which is the charge for using up of private and government capital in production; change in private inventories, which is the change in the physical volume of goods purchased by private business for use in the production of other commodities or for resale; "other changes in volume of assets," which consists of damages from disasters and war losses; and nominal holding gains or losses (or revaluation), which is the change in the value of assets that results from changes in the price level. The table shows the effect of each of these sources on the annual change in net stock (that is, the difference between the opening balance and the closing balance) of produced assets valued at current cost.

In 1998, the opening balance of produced assets was $23.8 trillion, and the closing balance was $25.1 trillion, a change of $1.3 trillion; the table below traces the steps for going from the opening balance to the closing balance for 1998.


Trillions of dollars
  Opening balance $23.8
+ Gross fixed investment $1.7
  Stock reconciliation adjustments $0
  Consumption of fixed capital $1.1
+ Change in private inventories $.1
  Other changes in volume of assets $0
+ Nominal holding gains or losses () $.6
= Closing balance $25.1

The following describes each of the sections of table 5.16.

The first section of the table (lines 1-5) presents the opening balance of produced assets valued at current cost for the beginning of the period.

The second section (lines 6-27) presents the investment flows that contribute to the accumulation of produced assets during the year. Private and government gross fixed investment in structures and in equipment and software are shown (lines 6-14).

Stock reconciliation adjustments to NIPA investment are subtracted (lines 15-17). These adjustments are needed because some types of investment expenditures enter the stock with a delay or do not add to stock of assets. The components of the stock reconciliation adjustments to NIPA investment, which are shown in the table in the addenda (lines 49-53), consist of the following:

(1) An intersectoral auto valuation adjustment (line 49). Gross fixed investment includes investment in new assets, plus brokers' commissions on sale of structures and dealers' margin on purchases of used equipment, less the net sales of used assets. In gross private fixed investment, net sales of used autos are valued at wholesale and do not reflect dealers' margins, but in the estimates of net stocks, these sales are valued at the original acquisition price less accumulated depreciation. An adjustment equal to the difference in prices is deducted; without this adjustment, the dealers' margins on sales of used autos would be included in the net stock of assets.

(2) Brokers' commissions on used nonresidential structures and dealers' margins on used equipment (line 50). These commissions and margins are included in NIPA fixed investment because they are expenditures for fixed assets that will be used in a production process for more than 1 year. However, these commissions and margins are not treated as fixed assets and are not included in the estimates of net stocks.

(3) The difference between the value of electric-power-plant construction put in place, which is the concept used in estimating NIPA investment, and the value of electric-power-plant investment put in use, which is when the assets enter the net stock estimates (line 51).

"Consumption of fixed capital (CFC), except for disaster losses" is subtracted (lines 18-26). In the NIPA's, CFC consists of charges for wear and tear, obsolescence, accidental damage, and aging; for private fixed assets and for fixed assets of government enterprises, CFC also includes the value of the damages incurred from natural and other disasters. In table 5.16, these two types of CFC are shown separately: "CFC, except disasters" is shown under "accumulation of produced assets" (lines 18-26) and disaster losses are shown under "other changes in volume of assets " (lines 29 and 32). In the NIPA's, CFC for assets of general government does not include disaster damage and war losses; the value of these losses is shown in the section "other changes in volume of assets" (line 31).5

The change in private inventories (line 27) is added to obtain the net accumulation of produced assets.

The third section (lines 28-32) shows the deductions of "other changes in volume of assets." For private assets, as noted above, the deductions consist of the value of damage from natural and other disasters. For government assets, the "other changes in volume of assets" includes war losses and the value of damage from natural and other disasters.

The fourth section (lines 33-43) shows the revaluation, that is, the effects of price changes. In addition to changes in the stock that result from investment, CFC, and "other changes in volume of assets," the current-cost net stock can change because of price changes. These changes in value resulting from price changes are called nominal holding gains or losses. Nominal holding gains or losses can be decomposed into two parts: Neutral holding gains or losses and real holding gains or losses. Neutral gains or losses (lines 34-38) represent the change in value of assets due to changes in the general price level. The term "neutral holding gains or losses" is used because all assets are revalued in exactly the same proportion. In this table, the measure of the general price level is the price index for gross domestic purchases.6 Neutral holding gains were positive for all years, reflecting increases in the current-cost net stock of produced assets that have resulted from increases in the general price index.

Real holding gains or losses (lines 40-43) reflect the impact of changes in the prices of individual assets relative to the change in the general price index. If an asset price increases more than the general price index, there will be a real holding gain; if it increases less, there will be a real holding loss. Since 1992, there have been real holding gains, as prices of structures have risen faster than the general price level and have more than offset real holding losses for equipment and software and for private inventories. For 1951-98 (the period for which estimates are available), there were real holding gains for 27 years and real holding losses for 21 years.

The fifth section (lines 44-48) presents the closing balance, that is, the current-cost value at the end of the year for produced assets.

Definitional and statistical improvements

The estimates of the net stock of fixed assets and consumer durable goods incorporate the following major definitional and statistical improvements.

Recognition of software as investment.--In the NIPA's, business and government expenditures for software are now recognized as fixed investment.7 The investment flows are now capitalized and included in the net stocks of private and government fixed assets. Software investment has three components--prepackaged software, custom software, and own-account software. Prepackaged software has an average service life of 3 years and is depreciated geometrically at a rate of 0.55 per year; custom and own-account software have average service lives of 5 years and are depreciated geometrically at a rate of 0.33 per year. In tables 1 and 2, software is included in all the components except private nonresidential structures and residential. For 1996, the inclusion of software as a fixed asset added about $174 billion to the net stock of private fixed assets and about $56 billion to the net stock of government fixed assets.

Depreciation pattern for personal computers.--The method for estimating the net stock of personal computers (PC's) has been changed. The depreciation of PC's is now based on a California study of fair-market values of personal property including PC's.8 The new estimates are based on a geometric pattern of depreciation that by the fifth year, results in a residual value for a PC of less than 10 percent of its original value. In the previously published estimates, the depreciation pattern for PC's was based on work by Stephen Oliner of the Federal Reserve Board that included a general depreciation schedule for computers, but not for PC's.9

The new method is consistent with the general procedure for calculating depreciation that was adopted in the 1996 comprehensive NIPA revision; assets are now depreciated using empirical evidence on used-asset prices and geometric patterns of price declines.10 For 1996, the use of the new method reduced the private net stock of PC's by nearly $30 billion.

New service life for highways.--On the basis of two recent studies of highway capital, the service life for highways and streets has been reduced from 60 years to 45 years.11 As a result, the net stock of government fixed assets for 1996 was reduced by about $140 billion.

Consistent estimates of intersectoral sales of used assets.--Previously, the NIPA estimates and the wealth estimates were not always consistent in their treatment of sales of used assets between government and private owners. As a step in integrating the estimation of asset stocks and investment flows for table 5.16 described above, the revised estimates of these sales between sectors have been made consistent. As a result, the distribution of fixed assets by type of owner was revised, but the total stock of private and government fixed assets was not affected.

Presentation of revised estimates

Tables 1-15 present the revised estimates of fixed assets and consumer durable goods. The odd-numbered tables except table 15 present current-cost estimates; the even-numbered tables present real-cost measures in terms of chain-type quantity indexes.

Tables 1 and 2 present estimates of the net stock of fixed assets and consumer durables. Tables 3 and 4 present the net stock of private fixed assets by type of asset; these tables have been redesigned to reflect the improvements made to the NIPA tables 5.4-5.9 (private fixed investment) as part of the NIPA comprehensive revision and include new lines for software.12 Tables 5 and 6 present the net stock of private fixed assets by industry; these tables now present residential and nonresidential assets as components within the farm and real estate industries, rather than as separate aggregates. Tables 7 and 8 present the net stock of private nonresidential fixed assets by selected industry group and legal form of organization. Tables 9 and 10 present the net stock of residential fixed assets by type of owner, legal form of organization, and tenure group. Tables 11 and 12 present the net stock of government fixed assets and include new lines for total Federal structures. Tables 13 and 14 present the net stock of consumer durable goods; these tables reflect the changes made to NIPA tables 2.6-2.7 (personal consumption expenditures) as part of the NIPA comprehensive revision. Table 15 presents estimates in chained (1996) dollars for the net stock of fixed assets and consumer durable goods.

Tables 1-15 follow.

Data Availability
The historical estimates for the tables at the end of this article will be available from BEA's Web site at and from STAT-USA’s Web site at . The industry estimates (tables 5 and 6) will begin with 1947; the estimates in the other tables will begin with 1925. The availability of these estimates will be announced on the inside back cover of the Survey of Current Business. Additional estimates will be available in June 2000. These include estimates of depreciation using current-cost valuation and chain-type quantity indexes for the data on the tables in this article; additional estimates of net stocks and depreciation for private assets by industry and legal form and for government assets by type of equipment and structure; and private net stocks and depreciation at historical cost by industry, asset, and legal form. The investment data used to derive these estimates and the average ages will be available in the early fall. In early 2001, BEA will publish Fixed Assets and Consumer Durable Goods in the United States, 1925–97, which will include revisions to the estimates for 1997 from this year’s annual revision. A CD-ROM will also be available that will contain these estimates and the underlying detail, including fixed-cost data used to prepare the current-cost valuations. The availability of the volume and the CD-ROM will be announced in the Survey.
The estimates of fixed assets and consumer durable goods were prepared by the National Income and Wealth Division and the Government Division. The estimates of private fixed assets and consumer durable goods were prepared under the direction of Shelby W. Herman, assisted by Kurt Kunze, Michael D. Glenn, Dennis R. Weikel, and Phyllistine M. Barnes. The estimates of government fixed assets were prepared under the direction of D. Timothy Dobbs, assisted by Jennifer A. Bennett and Charles S. Robinson. Duane G. Hackmann prepared the tables for typesetting. Overall supervision was provided by Brent R. Moulton, Associate Director for National Income, Expenditure, and Wealth Accounts, and by Karl D. Galbraith, Chief of the Government Division.

1. The net stock of consumer durable goods is not included in this table, because the NIPA's do not currently recognize household expenditures as investment. Estimates of government inventories are not available.

2. For detailed information on the international guidelines for national accounts, see Commission of the European Communities, International Monetary Fund, Organisation for Economic Cooperation and Development, United Nations, and the World Bank, System of National Accounts 1993 (Brussels/Luxembourg, New York, Paris, and Washington, DC, 1993).

3. For the methods used to derive net stocks, see U.S. Department of Commerce, Bureau of Economic Analysis, Fixed Reproducible Tangible Wealth in the United States, 1925-94 (Washington, DC: U.S. Government Printing Office, August 1999): M-1-M-36.

4. For a discussion of chain-type measures, see J. Steven Landefeld and Robert P. Parker, "BEA's Chain Indexes, Time Series, and Measures of Long-Term Economic Growth," Survey of Current Business 77 (May 1997): 58-68.

5. These damages and losses are not included in NIPA depreciation, because general government consumption expenditures is measured by adding up costs, including depreciation. Excluding these losses avoids increasing the measured output of general government fixed assets in GDP when there is war or disaster damage.

6. The year-over-year price change for existing produced assets is measured for the period from yearend t-1 to yearend t. The price change for investment, change in private inventories, CFC, and the "other changes in volume of assets" is measured for the half-years from the middle of year t to the end of year t.

7. For information on the new treatment of software in the NIPA's, see Brent R. Moulton, Robert P. Parker, and Eugene P. Seskin, "A Preview of Comprehensive Revision of the National Income and Product Accounts : Definitional and Classificational Changes," Survey 79 (August 1999): 7-20.

8. As a result of an earlier application of this methodology, the California State Board of Equalization recommended depreciation schedules for computers that were widely adopted in California and in several other western States. For further details, see Richard N. Lane, "Appraisal Report `Large Aerospace Firm' Personal Property, Los Angeles County, March 1, 1995," (revised February 2, 1999).

9. See Stephen D. Oliner, "Price Change, Depreciation and Retirement of Mainframe Computers," in Price Measurements and Their Uses, Studies in Income and Wealth, vol. 57, edited by Murray F. Foss, Marilyn E. Manser, and Allan H. Young (Chicago: University of Chicago Press, for the National Bureau of Economic Research, 1993): 19-61.

10. For a discussion of these improvements, see Arnold J. Katz and Shelby Herman, "Improved Estimates of Fixed Reproducible Tangible Wealth, 1929-95," Survey 77 (May 1997): 69-89. The basis for BEA's improved methodology is described in Barbara M. Fraumeni, "The Measurement of Depreciation in the U.S. National Income and Product Accounts," Survey 77 (July 1997): 7-23.

11. For information on the service life of highways, see Richard Beemiller, "Experimental Estimates of State and Local Government Highway Capital Stocks" (paper presented at the 1999 annual meeting of the Southern Regional Science Association, Richmond, VA, April 1999); and Barbara M. Fraumeni, Productive Highway Capital Stock Measures, a report prepared for the Federal Highway Administration, U.S. Department of Transportation, January 1999.

12. See Brent R. Moulton and David F. Sullivan , "A Preview of Comprehensive Revision of the National Income and Product Accounts: New and Redesigned Tables," Survey 79 (September 1999 ): 15-20.