Integration, KLEMS and the NIPAs J. Steven Landefeld, Director World KLEMS Conference Harvard University August 20 th, 2010

2 Integration: the foundation for KLEMS work ▪ Provide a complete set of accounts for the total economy and various sectors ▪ Ensure consistency in macroeconomic data used in the accounts ▪ Integrated statistics allow users to focus on analysis rather than making adjustments to the data

3 Importance of consistent data by Industry Differences in Growth Rates of Real Value Added, 2007 NOTE: Measures of value added were allowed to increase (decrease) by the difference in wage data between BLS and the Census Bureau. [Percent]

4 Importance of consistent data on Income Percent Change of Profit Measures

5 Integrated and Expanded Accounts ▪ Integrated accounts would include:  More complete reconciliation and balancing of the components of the U.S. accounts produced jointly by BEA, BLS, and the FRB  Common concepts  Business sector, non-farm business, etc.  Common methods  Seasonal adjustment, extrapolation and interpolation  Common source data  Accuracy and consistency vs. historical practice  Common, and or, reconciled business registers and classifications  Expanded data sharing authority

6 Integrated and Expanded Accounts ▪ Integrated accounts would include:  A complete production account, based on:  Integration of NIPA’s and MFP accounts, with real and nominal values  Estimates of capital services for private sector and addition of complete estimates of capital services for government and nonprofits.  Longer-term: development of output based measures of government and non-profit product.  A complete integration of real and financial accounts, based on:  Integration of BEA’s NIPA, Wealth, Balance of Payments, Industry, and Regional data with the Fed’s Flow of Funds and Balance Sheet Estimates

7 Integrated and Expanded Accounts ▪ Integrated accounts could be extended to:  R&D, Natural Resources, and Human Capital  Energy-Environment  Health Care, Household Production, and  Pensions

8 Current work & plans for further integration ▪ Better integration of BEA Industry and GDP Accounts; quarterly GDP by industry  Quarterly Final Expenditures, Income, and Production-based estimates   FRB-BEA Annual and Quarterly Estimates:   BLS-BEA Annual GDP-MFP Estimates: 

9 Integrated Production Account: Government and NonProfits ▪ GDP for government and nonprofits is now measured as compensation plus depreciation (capital consumption allowances) ▪ More complete measure of the cost of government and value of capital services would be rental value:  Rental Value = rNS + Dep – Expected Capital Gain  Picking an appropriate rate of return is difficult ▪ BEA includes private and government and nonprofit estimates in supplemental total economy production account

10 Integrated Production Account ▪ Other adjustments, including  Private sector labor (adjusted for labor composition)  Government labor inputs ▪ Such an integrated system enables users to identify the sources of changes in productivity and cross-walk them to GDP and its components:  Product  Industry  Type of income/value-added  Gross Output  Final sales  Intermediate products

11 International Integration: ▪ Closing the gap on international inconsistencies:  FISIM treatment  Valuations in factor, basic, producer prices used in value added  Measuring depreciation  Business accounting standards (IFRS vs. GAAP for R&D)  Seasonal adjustment practices  Common business registers  Software: prices & accounting treatment

12 Variation in software prices

13 Variation in capitalized services

14 Benefits of International Integration: ▪ Value of consistent macro estimates for coordinated fiscal, monetary, trade, regulatory and tax policies, based on:  SNA 2008  IMF Balance of Payments Manual  EU Price Manual  UN Guidelines on Integrated Economic Statistics,