Estimating the Components of U.S. Quarterly GDP: General methods and special procedures

Brian C. MoyerDeputy ChiefNational Income and Wealth Division

10th OECD-NBS Workshop on National Accounts

Paris, FranceNovember 6-10, 2006

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Overview of quarterly GDP

Expenditures approach used to estimate quarterly GDP

GDP = C + I + G + (X - M)

Quarterly GDP revision cycle “Advance” estimate “Preliminary” estimate “Final” estimate Annual revision Comprehensive revision

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Overview of quarterly GDP

Source data A wide variety of data are used

Federal agency data—shipments, inventories, construction-put-in-place, prices, etc.

Trade source data—motor vehicle unit sales and prices, consumer spending on services, etc

BEA’s international transactions accounts Trend-based data also used, especially for an

advance estimate Assumptions about missing data are

published Availability and quality of data improve with

each successive revision of the estimate

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Overview of quarterly GDP

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Estimating quarterly GDP

Annual current-price estimates are “benchmarked” to the input-output tables in economic census years

Annual current-price estimates are calculated by interpolating between input-output tables and by extrapolating forward from the most recent input-output table with annual indicators

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Estimating quarterly GDP

Quarterly current-price estimates are calculated by interpolating and extrapolating with seasonally-adjusted quarterly indicators

Detailed constant-price estimates are calculated Deflation method Quantity extrapolation method Direct valuation method

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Estimating quarterly GDP

Detailed constant-price estimates are aggregated Fisher chain-type price and volume indexes Chained-volume estimates Contributions estimates

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Estimating quarterly GDP

In addition …

For certain components of GDP, special procedures are used to prepare the quarterly estimates Consumer spending on goods Private investment in equipment Change in private inventories

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Consumer spending on goods

“Retail control method” used to prepare current-price quarterly indicators for consumer spending on goods (excluding motor vehicles)

Quarterly retail trade survey data are available only on an industry basis; estimates of consumer spending must be prepared on a product basis

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Retail control method

Transformation matrix System of linear equations that relate retail

sales by industry to purchases by product Based on relationships in economic census

year

“Control group” used to extrapolate total consumer spending on goods

Some products are estimated independently Tobacco Gasoline and oil Prescription drugs

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Private investment in equipment

“Commodity-flow method” used to prepare current-price estimates for detailed components of private investment in equipment

Quarterly data on private investment in equipment are not available; an abbreviated commodity-flow method provides estimates based on the supply and use of commodities

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Commodity-flow method

For a detailed component of private investment in equipment,

net supply = shipments + commodity taxes – exports + imports - government purchases – change in inventories

private investment in equipment = net supply – intermediate purchases – consumer purchases + margin + transportation costs

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Change in private inventories (CIPI)

Inventory stocks are reported by firms at “book value” using a variety of accounting methods—LIFO, FIFO, average cost, etc.

For the NIPAs, CIPI must be valued at current cost—that is, the change in book value must be adjusted for holding gains and losses

CIPI can be negative at both the industry and aggregate levels

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Estimating CIPI

Step 1.—Compute a monthly price index by industry

Weighted average price index that reflects the composition of commodities held in inventory by the industry in a given month

Composition of commodities based on data from the economic census

Commodity price indexes are primarily producer price indexes

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Estimating CIPI

Step 2.—Compute an end-of-month price index, PE

t, by industry

Calculated as a two-month moving average of the monthly price index, computed in step 1

Step 3.—Compute a monthly average price index, PA

t, by industry

Calculated as a two-month moving average of the end-of-month price index, PE

t

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Estimating CIPI

Step 4.—Compute a monthly cost index, PC

t, by industry

Represents the cost of acquiring inventories held by the industry in a given month

In general, inventories are acquired over several months; a “turnover pattern” is applied to the monthly average price index, PA

t

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Estimating CIPI

Step 5.—Compute monthly current-price CIPI by industry

CIPI Non-LIFOt = PA

t * [(Bt / PCt) – (Bt-1 / PC

t-1)] * (1 - L)

where Bt is the book-value stock of inventories and L is the percentage of the inventories valued using the LIFO method

CIPI LIFOt = (Bt - Bt-1) * L

CIPIt = CIPI Non-LIFOt + CIPI LIFO

t

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Estimating CIPI

Step 6.—Compute monthly constant-price CIPI by industry Calculated as current-price CIPI deflated

with the industry-based average monthly price index, PA

t

Constant-price CIPIt = (CIPIt / PAt)

Constant-price CIPI by industry provides the deflation-level components used to compute Fisher price and volume indexes for major aggregates, including gross private domestic investment and GDP

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Estimating CIPI

Step 7.—Compute a monthly inventory valuation adjustment, IVAt, by industry Calculated as the difference between

current-price CIPI and the change in book value

IVAt = CIPIt – (Bt – Bt-1)

Represents the adjustment needed to remove holding gains or losses

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Estimating CIPI

Step 8.—Compute constant-price inventory stocks by industry Calculated by accumulating constant-price

CIPI

Constant-price inventory stockt = constant-price inventory stockt‑1 + constant-price

CIPIt

Constant-price inventory stocks by industry provide the deflation-level components used to compute aggregate chained-volume inventory stocks (using the Fisher chained-index formula)

Changes, over time, in the aggregate chained-volume inventory stocks are the NIPA estimates of chained-volume CIPI