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From the September 1998 SURVEY OF CURRENT BUSINESS

Updated Summary NIPA Methodologies

This report presents summary descriptions of the principal source data and methods used to prepare the current-dollar estimates of gross domestic product (GDP) and the estimates of real GDP./1/ These descriptions have been updated to reflect the methodological improvements that were introduced in the annual revision of the national income and product accounts (NIPA's) that was released in July 1998./2/

Current-dollar estimates

Table 1 lists the components of current-dollar GDP starting with the components on the product side and proceeding to those on the income side. The subcomponents, with their dollar values for 1997, are grouped according to the methodology used to prepare them.

The column for the annual estimates covers the revision cycle for those estimates and notes the major differences in methodology as the estimates move through the three annual revisions to a comprehensive, or benchmark, revision./3/ For example, for "most goods" in personal consumption expenditures (the first item on the product side), the table indicates one methodology for benchmark years and another for all other years.

The column for the quarterly estimates covers only the advance estimate for the current quarter—that is, the estimate prepared about a month after the end of the quarter. That estimate, rather than the preliminary or final quarterly estimate, is described because more attention focuses on the "first look" at the quarter. In addition, the column lists only the source data and methods; it does not indicate how many months of source data are available or whether the data are subject to revision by the source agency. Information on the key monthly source data appears each month in the "Business Situation" in the SURVEY OF CURRENT BUSINESS. Additional information on the monthly source data used for the advance estimate is available online from the Department of Commerce's Economic Bulletin Board./4/

The source data listed consist of a variety of economic measures, such as sales or receipts, wages and salaries, unit sales, housing stock, insurance premiums, expenses, interest rates, mortgage debt, and tax collections. For most components, the source data are "value data"; that is, they encompass both the quantity and price dimensions that are required for current-dollar estimates. In these cases, the methodology indicated in table 1 covers only the adjustment of the value data to derive estimates consistent with NIPA definitions and coverage.

For those estimates not derived from value data, the table indicates the combination of data with separate quantity and price dimensions that is used to derive the required value estimate and the major adjustments needed to derive estimates consistent with NIPA definitions and coverage. On the product side, a "physical quantity times price" method is used for several components. For example, the estimate for new autos is calculated as unit sales times expenditure per auto (the average list price with options, adjusted for transportation charges, sales tax, dealer discounts, and rebates). On the income side, an "employment times earnings times hours" method and variations of a "stock of assets/liabilities times an effective interest rate" method are used for several components.

Some of the source data shown in table 1 for the annual estimates are used as indicators to interpolate and extrapolate the levels established by source data that are more comprehensive, and all of the source data shown for the advance quarterly estimates are used to extrapolate the level of the preceding quarter. In addition, extrapolation and interpolation may be based on trends, as is the case when "judgmental trend" is listed in the table./5/

Estimating methods.Table 1 refers to four methods—commodity flow, retail control, perpetual inventory, and fiscal year analysis—used by BEA for estimating specific components.

The commodity-flow method is used to obtain the value of final users' purchases of goods and services (that is, commodities) for BEA's benchmark input-output accounts. These values serve as the benchmark for the NIPA estimates of personal consumption expenditures (PCE), of producers' durable equipment (PDE), and of the commodity detail for State and local government consumption expenditures and gross investment./6/ This method is also used for PDE in nonbenchmark years, but it is implemented in an abbreviated form. An even more abbreviated commodity-flow method is used for current quarterly estimates of PDE.

The retail-control method is used to estimate over one-third of the value of PCE for periods other than benchmark years. This method provides the indicator series used in extrapolating and interpolating the total of "most goods" and the "control" total to which the PCE categories and residential PDE included in this group must sum. These PCE categories consist of all goods except autos and trucks, food furnished to employees, food and fuel produced and consumed on farms, standard clothing issued to military personnel, school lunches, and net foreign remittances./7/

The perpetual-inventory method is used to derive estimates of fixed capital stock, which in turn form the basis for the estimates of consumption of fixed capital. This method is based on investment flows and a geometric depreciation formula; it is used instead of direct measurement of the capital stock because direct measurement is seldom statistically feasible on a comprehensive basis./8/

The fiscal year-analysis method provides the framework for the annual and quarterly estimates of Federal Government consumption expenditures and gross investment. The estimates of expenditures are prepared by program—that is, by activity for a group of line items or for an individual line item in the Budget of the U.S. Government. For most programs, the fiscal year analysis begins by adjusting budget outlays for coverage and for netting and grossing differences between these outlays and NIPA expenditures. The expenditures total (as adjusted) for a program is then classified by type of NIPA expenditure—for example, transfer payments and interest paid—with nondefense consumption expenditures and gross investment determined residually. When a fiscal year analysis is completed, the detailed array of NIPA expenditures by program and by type of expenditure serves as a set of control totals for the quarterly estimates./9/

Balance of payments accounts.—The source data for the foreign transactions reflected in most NIPA components—such as net exports of goods and services and rest-of-the-world corporate profits—are the balance of payments accounts (BPA's), which are also prepared by BEA./10/ As noted in table 1, for some NIPA components, the BPA estimates are adjusted to conform to NIPA concepts and definitions./11/ Annual estimates of these adjustments and their definitions are shown in NIPA table 4.5, which was last published in the August 1998 SURVEY on page 69; summary quarterly estimates are shown in "Reconciliation Tables" in appendix A of the SURVEY.

Other information.—In preparing the annual estimates of several of the income-side components, BEA adjusts the source data for various coverage and conceptual differences. For each subcomponent listed below, an annual NIPA table reconciles the value published by the source agency with the NIPA value published by BEA and identifies the BEA adjustments. The following is a list of the subcomponents and their corresponding reconciliation tables, which were last published in the August 1998 SURVEY beginning on page 116: Wages and salaries, table 8.25; farm proprietors' income, table 8.22; nonfarm proprietors' income, table 8.21; corporate profits, table 8.23; net interest, table 8.24; and consumption of fixed capital, table 8.20.

Real estimates

Table 2 shows which one of three methods—deflation, quantity extrapolation, and direct base-year valuation—is used to prepare the quantity index for each detailed product-side component of real GDP and identifies the source data with which the method is implemented./12/ Deflation is used for most of the detailed components. In deflation, the quantity index is obtained by dividing the current-dollar index by an appropriate price index that has the base year—currently 1992—equal to 100 and then by multiplying the result by 100.

The quantity-extrapolation and direct-base-year-valuation methods are similar in that they both use explicit quantity data. In quantity extrapolation, quantity indexes are obtained by using a quantity indicator to extrapolate from the base-year value of 100 in both directions. In direct-base-year valuation, quantity indexes are obtained by multiplying the base-year price by actual quantity data for the index period and then expressing the result as an index with the base year equal to 100.

The subcomponents in table 2 are the same as those shown in table 1, but the detail differs to highlight the alternative methodologies used for calculating the real estimates./13/


1. BEA has prepared a series of papers that provide detailed descriptions of NIPA concepts and methodologies. The methodologies described in these papers are subject to periodic improvements, which are typically introduced as part of annual and comprehensive revisions; these improvements are described in the articles in the SURVEY OF CURRENT BUSINESS that cover these revisions. For more information, see appendix B at the back of this issue.

2. See "Annual Revision of the National Income and Product Accounts," SURVEY OF CURRENT BUSINESS 78 (August 1998): 7–32.

3. For additional details on the release schedule for the NIPA estimates, see "A Guide to the NIPA's," SURVEY 78 (March 1998): 43.

4. For additional information about the Economic Bulletin Board, call STAT–USA at 202–482–1986.

5. For a few components, the final quarterly estimates are based on newly available source data that replace judgmental trends.

6. For additional information on the commodity-flow method, see U.S. Department of Commerce, Bureau of Economic Analysis, Personal Consumption Expenditures, Methodology Paper MP–6 (Washington, DC: U.S. Government Printing Office, 1990): 31–34; and U.S. Department of Commerce, Bureau of Economic Analysis, GNP: An Overview of Source Data and Estimating Methods, Methodology Paper Series MP–4 (Washington, DC: U.S. Government Printing Office, 1987): 16–17.

7. For additional information, see Personal Consumption Expenditures, 41–54; and GNP: An Overview, 17.

8. For additional information on the perpetual-inventory method, see U.S. Department of Commerce, Bureau of Economic Analysis, Fixed Reproducible Tangible Wealth in the United States, 1925–89 (Washington, DC: U.S. Government Printing Office, January 1993): M-2–M-15; and GNP: An Overview, 17–18. For additional information on the geometric depreciation formula, see "Improved Estimates of Fixed Reproducible Tangible Wealth, 1929–95," SURVEY 77 (May 1997): 69–92.

9. For additional information and an illustration of the fiscal year-analysis method, see U.S. Department of Commerce, Bureau of Economic Analysis, Government Transactions, Methodology Paper Series MP–5 (Washington, DC: U.S. Government Printing Office, 1988): 19–20.

10. See U.S. Department of Commerce, Bureau of Economic Analysis, The Balance of Payments of the United States: Concepts, Data Sources, and Estimating Procedures, (Washington, DC: U.S. Government Printing Office, 1990). The methodologies described in this publication are subject to periodic improvements, which are typically introduced as part of the annual revision of the BPA's; these improvements are described in the SURVEY articles that cover the annual BPA revisions, most recently in "U.S. International Transactions, Revised Estimates for 1986–97," SURVEY 78 (July 1998): 47–55.

11. These adjustments are described in U.S. Department of Commerce, Bureau of Economic Analysis, Foreign Transactions, Methodology Paper Series MP–3 (Washington, DC: U.S. Government Printing Office, 1987): 15–25.

12. For additional information on the calculation of real GDP, see "A Guide to the NIPA's," 36–40.

13. For the real estimates, the distinction between annual and quarterly methodologies is far less important than it is for the current-dollar estimates. For the relatively few cases in which the annual and quarterly source data differ, the major differences are noted in the entry.