Lucas Hitt U.S. Bureau of Economic Analysis November 6, 2014 The Economy: How Do We Know What We Know?

Let’s Talk About Economic Data  Federal Economic Statistics  National Accounting  Lessons from the Great Recession & Evolutions to Come  BEA 101  Online & Other Resources 2

Origin of the GDP Accounts “One reads with dismay of Presidents Hoover and then Roosevelt designing policies to combat the Great Depression of the 1930’s on the basis of such sketchy data as stock price indices, freight car loadings, and incomplete indices of industrial production. The fact was that comprehensive measures of national income and output did not exist at the time. The Depression, and with it the growing role of government in the economy, emphasized the need for such measures and led to the development of a comprehensive set of national income accounts.” Richard T. Froyen 3

4 National Accounts & GDP: 75 Years of Responding to Policy Needs and Changes in the Economy

Contribution of the National Accounts to Stability and Economic Growth “Much like a satellite in space can survey the weather across an entire continent so can the GDP give an overall picture of the state of the economy. It enables the President, Congress, and the Federal Reserve to judge whether the economy is contracting or expanding, whether the economy needs a boost or should be reined in a bit, and whether a severe recession or inflation threatens. Without measures of economic aggregates like GDP, policymakers would be adrift in a sea of unorganized data. The GDP and related data are like beacons that help policymakers steer the economy toward the key economic objectives.” Paul Samuelson and William Nordhaus 5

Contribution of the National Accounts to Stability and Economic Growth  National accounts, in combination with better informed policies and institutions, contributed to a reduction in the severity of business cycles and strong post-war economic growth.  1854 – 1945: Twenty two financial panics and depressions, longer and deeper than post-war recessions, with an average duration of 21 months.  During the great depression U.S. GDP contracted by 26 percent.  : Eleven recessions, with an average duration of 11 months.  During the great recession U.S. GDP contracted by 4.3 percent. 6

Contribution of the National Accounts to Stability and Economic Growth  Post WW II era a period of unprecedented growth.  Real GDP per capita and real wealth has more than doubled during the post war era.  Dramatic improvement in standards of living that contributed to large improvements in social conditions, cutting poverty in half, raising life expectancy, and adding to leisure time. 7

Challenges: Looking Forward  Addressing gaps revealed by the Great Recession  Improved measures on key issues including innovation, health care, pensions, and human capital  Improved measures of economic welfare, including distribution of income 8

Gaps Revealed by the Great Recession 9

10 Gaps Revealed by the Great Recession

11 Gaps Revealed by the Great Recession

Post Financial Crisis & Great Recession Challenges: How Did We “Miss” the Stock Price Bubble? 12 Source: BEA, S&P

13 Better Understanding the Impact of Innovation on Growth  Intellectual property products (new category including R&D, software and entertainment, literary and artistic originals) increased the growth rate of real GDP by.19 percentage point, a 7.6% share of growth.  From , incorporating R&D investment increased the growth rate of real GDP by.07 percentage point, a 2.8% share of growth.  Even if IP spillovers are as large as direct effects, the contribution of IP appears to explain only part of the 1/3 of long-term share of growth accounted for by multi-factor productivity.

14  In comparison, private investment in commercial and other types of structures accounted for just over.4 percent of average real GDP growth from  The contribution to average real GDP growth from IP products is larger than private investment in computers and peripheral equipment.  Recognition of private R&D as investment raises private fixed investment by 10 percent in Better Understanding the Impact of Innovation on Growth

Entertainment, Literary and Artistic Originals 15 Theatrical Movies Long-Lived Television Books Music Misc. Total Investment in 2012: $74.8 billion Source: BEA Share of Investment in Entertainment, Literary and Artistic Originals by Type

Improved Measures of Economic Welfare: Happiness & the Financial Crisis Source: BEA, Gallup Unemployment rate Gallup Well-being Index 16

Improved Measures of Economic Welfare: Distribution of Income 17 Source: BEA & Census Bureau

About BEA  The Bureau of Economic Analysis (BEA) is an Executive-branch agency.  BEA is one of the world’s leading statistical agencies  BEA is very small ( 500 employees) compared to other statistical agencies.  Most input data collected for purposes other than the development of our statistics.  No BEA employee is a political appointee. 18

19 BEA’s Role in the Federal Statistical System  Comprehensive Measures of the U.S. Economy  Double-entry sets of economic accounts  National, International, Regional, and Industry Accounts  Except for its International Surveys, BEA accounts are built on a mosaic of public and private data collected for other purposes  Mine-Shaft Canary for U.S. Statistics

20 Source Data for BEA Accounts Other source agencies: EIA - DoE NASS, ERS, NCES, and HHS-CMS Lots of private data

BEA’s National Economic Accounts  The National Income and Product Accounts (NIPAs) are a set of economic accounts that track economic flows within the U.S. economy. Two key NIPA measures are:  Gross domestic product (GDP): Measures the total value of goods and services produced within the U.S. in a period.  Gross domestic income (GDI): Measures the incomes earned and the costs incurred in producing those goods and services. 21

Expenditure Components of GDP (2013) GDP = C + I + G + X - M = GDP Consumption 68.4% Government 18.6% Investment 15.9% Exports 13.5% Imports 16.4%

Dating the Business Cycle

How are GDP Estimates Used?  Policymaking  Academic research  Business decisions 24

The Right Trade Off Between Accuracy and Timeliness? 25

BEA’s International Economic Accounts  Balance of payments (International transactions accounts)  Trade balance  Current-account balance  International investment position  Operations of multinational companies  International services 26

BEA-Developed Source Data  BEA surveys provide important international data  Direct investment (U.S. and abroad)  Operations of multinational companies (MNCs)  Trade in services  Mandatory surveys are sent to:  U.S. MNCs and U.S. affiliates of foreign companies.  U.S. companies that import or export services 27

How are International Statistics Used?  Macroeconomic policy decisions  Determining market size, share, and direction  Analyzing size and composition of inbound and outbound direct investment  As a measure of globalization 28

Monthly Exports and Imports: Goods & Services 29

BEA’s Industry Economic Accounts  Input-Output Accounts (Benchmark & Annual Tables)  GDP-by-industry statistics  Gross Output  Intermediate Inputs  Value Added  KLEMS  Travel and Tourism Satellite Account  Research and Development Satellite Account 30

Industry Output = Commodity Output Total Industry Output = Intermediate Industry Purchases + Value Added Input-Output (Use) Table

GDP by Industry 32

How are Industry Statistics Used?  Study production capacity and productivity across industries  Examine effects of a strike or a natural disaster on the U.S. economy  Measure the impact of trade policies  Assess cross-industry impacts of economic and regulatory changes

BEA’s Regional Economic Accounts 34  Gross Domestic Product  State/Territory, Metropolitan Area  Personal Income  State, Metropolitan Area, County  Regional Input-Output Multipliers (RIMS II)

How are Regional Statistics Used?  Analysis of state and local economic impacts of national or state economic trends  Project tax revenues, the need for public services, or promote economic development opportunities  Conduct market research  Allocate federal funds to states

bea.gov BEA Regional Income & Product Account Estimates Used to Distribute $ 320 Billion in Federal Funds, FY2012 All other $23,098 Medicaid $204,053 Medicaid $262,389 Medicaid Grants $262,389 Medicaid Grants $262,389 Medicaid Grants $262,389 Medicaid Grants $262,389

111 Largest Counties Account for ½ U.S. Personal Income 37

Personal Income 38

Regional Example: Oklahoma City Compensation 71 % growth 39

Regional Example: Hawaii GDP 125 % growth 40

BEA’s New Regional Data Products BEA is releasing several new statistical products in 2014, as a part of an ongoing effort to better measure the dynamic regional economies.  Quarterly GDP by State  Real Personal Income for State and Metropolitan Areas  Personal Consumption Expenditures by State  U.S. Quarterly GDP by Industry

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Questions  Contact Information:  Lucas Hitt Chief of Communications U.S. Bureau of Economic Analysis  