U.S. Bureau of Economic Analysis Presentation to the National Association for Business Economics December 17, 2003 Overview of the 2003 Comprehensive Revision J. Steven Landefeld Director

2 Comprehensive Revision Updated concepts, methods, and sources Increased consistency Expanded and improved presentations This revision: major changes affecting a large number of components, but no significant rewrite of economic history

3 Comprehensive Revision – The Numbers Growth trends –Relatively the same. –“New economy” period virtually unchanged. At 3.8% growth ( ). Business cycles –Again, no significant changes in timing or magnitude of cycles. –Average decline in post-war recessions were unrevised at -1.9.

4 Recent Trends Source: Bureau of Economic Analysis. Average annual rates of change of real GDP (Selected periods)

% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% Prev. published (1996)Revised (2000) Business Cycles Source: Bureau of Economic Analysis. Real gross domestic product (Percent change)

6 Last Recession (2000:IV-2001:III) Same length and timing (3 quarters). Still mild versus past recessions (-0.6 revised to -0.5 percent). Investment declines are still a large part of the story. –Decline in investment during the downturn (2000:IV :III) are slightly smaller (-11.0 revised to -9.2 percent). –Period leading up to recession was weaker with one negative quarter in 2000:III.

7 Current Cycle Source: Bureau of Economic Analysis. Real gross domestic product (Percent change, SAAR)

8 Current Recovery (2001:III-2003:II) Still moderate versus prior expansion periods. –Real growth of 2.6 percent as compared to growth of 5.2 percent. Small revision to growth means that strong productivity performance during the recovery will remain.

9 Current Recovery (2001:III-2003:II) Source: Bureau of Economic Analysis. * Includes the following recovery periods: 1958:I-1960:I, 1960:IV-1969:III, 1970:IV-1973:IV, 1975:I-1980:I, 1980:III-1981:I, 1982:III-1990:II, and 1991:I-2000:IV. Average annual rates of change of real GDP (Selected periods)

10 Inflation Still moderate over the last decade. –Inflation, as measured by Gross Domestic Purchases Prices, unrevised at 1.8 percent, Still moderate during expansion. –Inflation, as measured by Gross Domestic Purchases Prices, revised up from 1.5 percent to 1.6 percent, 2001:III :II.

11 Inflation Source: Bureau of Economic Analysis. Average annual rates of change in price indexes for gross domestic purchases, GDP, and PCE ( )

12 Sources of Growth The sources of economic growth over the last decade for the major moving parts of GDP are little changed. –Growth rates for business fixed investment and imports are unrevised, –Consumer spending and residential investment growth rates are slightly lower. –Exports and government are slightly higher.

13 Sources of Growth Source: Bureau of Economic Analysis. Average annual rates of change of real GDP and its major components ( )

14 Revisions to Income The most significant revisions are to corporate profits. –Large upward revision in 2002 reflects improved method for estimating the costs of stock options.

15 Revisions to Profits Source: Bureau of Economic Analysis. Corporate profits from current production (Revisions in level)

16 What Numbers Did Change? Banking Insurance Construction Fringe benefits Other – From used cars to copy machines

17 Sources of Revisions Source: Bureau of Economic Analysis. Sources of revision to current-dollar GDP (Billions of dollars)

18 Previously Published Insurance Data Source: Bureau of Economic Analysis. PCE household insurance – published (Billions of dollars, SAAR) Sept. 11 Hurricane Andrew

19 Revised Insurance Data Source: Bureau of Economic Analysis. PCE household insurance – revised (Billions of dollars, SAAR)

20 Revisions to Compensation Source: Bureau of Economic Analysis. Sources of Revisions to Compensation of Employees (Billions of dollars)

21 Why Weren’t the Changes Larger? Introduction of chain indexes in 1996 avoids rewrites of economic history due to base changes. Practice of bringing in updates and changes sooner rather than waiting for benchmarks provides revised data earlier – when its most relevant – rather than later. Investments in data made by Administration and Congress are beginning to pay off.

22 What Challenges Remain? Large gaps in coverage remain. –Detailed coverage of manufacturing, agriculture, and mining; but poor coverage of many new and old industries. Over 1/4 of GDP estimated using a patchwork of data. –Census data on finance and insurance, utilities, real estate, and a large share of transportation are only available once every 5 years (1992 value of these industries sales was $3 trillion). –Census data on personal and business services are available annually, but growth and volatility coupled with lack of quarterly data has caused services to be a large source of revisions to GDP.

23 What Challenges Remain Monthly payroll data cover only the wages and salaries of production and non-supervisory workers, who account for a little over half of wages and salaries in today’s economy. Data on producers prices cover roughly 50% of service industry prices. The United States has the world’s finest set of economic accounts, but incomplete integration and inconsistencies reduce their usefulness. All of these challenges are on BEA/Census/BLS strategic agendas; but in a world of constrained resources, progress has been slow.