Integrated Macroeconomic Accounts for the United States: Draft SNA-USA Prepared for: OECD Working Party on Financial Statistics Meeting October 11, 2004 Paris, France

Draft SNA-USA 2 Federal Reserve Board Bureau of Economic Analysis Joint Project of Federal Reserve Board and Bureau of Economic Analysis Paper prepared for NBER/Conference on Research in Income and Wealth, Architecture for the National Accounts, April 16-17, 2004 in Washington, D.C. Authors: Albert M. Teplin (CSE Analysis) Rochelle Antoniewicz, Susan Hume McIntosh, Michael Palumbo, and Genevieve Solomon (Board of Governors of the Federal Reserve System) Charles Ian Mead, Karin Moses, Brent Moulton (Bureau of Economic Analysis, Department of Commerce)

Draft SNA-USA 3 Project Goals Produce integrated accounts—Draft SNA-USA—based on NIPA, ITA, and FFA. Identify inconsistencies among existing accounts. Eliminate inconsistencies where possible for Draft SNA- USA. Develop a program to: – Deal with remaining inconsistencies. – Correct other deficiencies. – Enhance presentation.

Draft SNA-USA 4 What are Integrated Accounts? Draft SNA-USA follows SNA93 structure with a complete sequence of accounts: – Current (production and income). – Capital accumulation. – Financial accumulation. – Other changes in volume. – Revaluation. – Balance sheet.

Draft SNA-USA 5 7. Capital gains (revaluations) 6. Other changes in volume 5. Lending and borrowing (capital account) 4. Capital accumulation 3. Income & saving (current account) 2. Production (current account) 1. Balance sheet position Progression of Accounts

Draft SNA-USA 6 Data for Draft SNA-USA are Mostly Available Major components are provided in the NIPA, ITA, and FFA (see text table A on page 9). We needed to: – Expand sector detail. – Resolve inconsistencies in sector boundary definitions. – Improve depth of content for some accounts. – Standardize format and terminology among accounts and relative to SNA93.

Draft SNA-USA 7 Shortcomings of NIPA Relative to Integrated Accounts BEA provides production by industry in separate input-output and GDP-by-industry accounts, while integrated accounts in SNA93 envision providing production by sector. NIPA sectors in the production account differ from those in the income account, while integrated accounts in SNA93 call for consistently defined sectors throughout.

Draft SNA-USA 8 Shortcomings of FFA Relative to Integrated Accounts FFA ‘other changes in volume’ and ‘revaluation’ accounts lack the depth envisioned for integrated accounts. FFA balance sheet accounts are limited to a few sectors, and estimates necessary for full articulation of changes in net worth are not available for all sectors.

Draft SNA-USA 9 Draft SNA-USA Has Five Sectors and Several Subsectors 1. Households and nonprofit institutions serving households 2. Nonfinancial business, split into: Nonfinancial corporate business Nonfinancial noncorporate business 3. Financial business. 4. General government split between: Federal government State and local governments 5. Rest of the world. (See text table B on page 11 for more details)

Draft SNA-USA 10 Important Characteristics of Draft SNA-USA Time series format; annual Official data as of June 10, 2004, where available. GDP/Value-added measured from the income-side estimates in the NIPA; no attempt to disperse the NIPA statistical discrepancy among sectors. Favors net lending/net borrowing in the capital account, rather than the financial account, for estimates of changes in net worth.

Draft SNA-USA 11 Additional Features of Draft SNA-USA Explicit accounting of statistical discrepancy between net lending/net borrowing in capital account and financial account. Inclusion of consumer durable goods in household balance sheet. A complete set of accounts is shown for all sectors, although it required some estimates not in NIPAs or FFAs.

Draft SNA-USA 12 Draft SNA-USA Compared with SNA93 and Current Publications No separate sector for nonprofits institutions as in NIPA and FFA. Separate sector for noncorporate nonfinancial businesses, which is not in SNA93. Treatment of housing is consistent with current publications but not SNA93. Placement of government enterprises in the government sectors differs from NIPA treatment.

Draft SNA-USA 13 Draft SNA-USA Table 1: Total Economy - Current Account (page 22) Illustrates income-side approach. Net national income = gross value added + net income receipts from rest of world GDP in Draft SNA-USA differs with that shown in NIPA, by the NIPA statistical discrepancy (lines 42-44).

Draft SNA-USA 14 Draft SNA-USA Table 3: Households and NPISH Net saving and disposable income differ slightly between Draft SNA-USA and NIPA. The level of the household saving rate is a bit higher than in NIPA.

Draft SNA-USA 15 Draft SNA-USA Table 3: Households and NPISH Capital account excludes net additions to the stock of consumer durable goods. Financial account measure of net lending/net borrowing is not used. Financial account statistical discrepancy (balancing item) included in the other changes in volume account. Net investment in consumer durable goods is in the other changes in volume account. Capital gains/losses are in the revaluation account.

Draft SNA-USA 16 Draft SNA-USA Table 3: Households and NPISH Change in sector net worth is the sum of: – Net capital formation. – Net lending/net borrowing (capital account). – Other changes in volume (includes discrepancy). – Nominal holding/gains and losses. The change in net worth and level of net worth is the same as published in FFA.

Draft SNA-USA 17 Draft SNA-USA Table 3: Households and NPISH

Draft SNA-USA 18 Draft SNA-USA Table 5: Nonfinancial Corporate Business Statistical discrepancy between capital and financial accounts is treated the same as in the household sector. The calculation of net worth in Draft SNA-USA is substantially different than figures published in FFA. – In FFA, net worth is the market (or replacement) value of assets less liabilities, excluding the market value of shares. – In Draft SNA-USA, net worth is the market value (or replacement) value of assets less liabilities, including the market value of shares. – The Draft SNA-USA net worth is a variant of Tobin’s Q.

Draft SNA-USA 19 Draft SNA-USA Table 5: Nonfinancial Corporate Business

Draft SNA-USA 20 Draft SNA-USA Table 5: Nonfinancial Corporate Business

Draft SNA-USA 21 Selected Issues Forced a closer look by both agencies of sector discrepancies. In particular, the discrepancies for the business sectors are of concern. – Boundary between nonfinancial and financial sectors. – Booking of miscellaneous financial assets, in particular the accounting for goodwill and other intangible assets.

Draft SNA-USA 22 Where Do We Go From Here? Exercise shows agencies can produce workable integrated macroeconomic accounts with current data; But, considerable investment would be needed to produce integrated accounts for the period before 1985 and accounts on a continuing basis. Both agencies have projects underway that would further develop and refine Draft SNA-USA.

Draft SNA-USA 23 Mapping FOF Sectors into SNA Nonfinancial business Nonfarm nonfinancial corporate business Nonfarm noncorporate business Farm business

Draft SNA-USA 24 Mapping FOF Sectors into SNA Monetary financial institutions Monetary authority U.S.-chartered commercial banks Foreign banking offices in U.S. Bank holding companies Banks in U.S.-affiliated areas Savings institutions Credit unions

Draft SNA-USA 25 Mapping FOF Sectors into SNA Other financial intermediaries Money market mutual funds, Mutual funds Closed-end and Exchange-traded funds Government-sponsored enterprises Agency- and GSE-backed mortgage pools Issuers of asset-backed securities Finance companies Mortgage companies Real estate investment trusts Security brokers and dealers Funding corporations

Draft SNA-USA 26 Sector Issues Should money market mutual funds be in ‘other monetary financial institutions’? Should security brokers and dealers be classified as a ‘financial auxiliaries’?

Draft SNA-USA 27 Mapping FOF Sectors into SNA Insurance corporations and pension funds Life insurance companies Other insurance companies Private pension funds State and local govt. employee retirement funds Federal government retirement funds

Draft SNA-USA 28 Mapping FOF Sectors into SNA Central govt. = Federal govt. State govt. = State and local govt. Households and nonprofit institutions Households and nonprofit organization Bank personal trusts Rest of the world = Rest of the world

Draft SNA-USA 29 OECD Matrix Submission (Annex 4, pages 48-51) Data from quarterly FFA fame database Time series begin in 1945 Flow series names: FA Levels series names: FL Coded matrix extracts series from database Some cells calculated in matrix Updated each quarter after FFA published