GDP Using the Income Approach: the U.S. Experience Brian C. Moyer International Workshop on Household Income, Consumption, and Full Accounting of the Household Sector March 26-28, 2012 Beijing, China

bea.gov 2 Measuring GDP  Expenditures approach GDP = C + I + G + (X-M)  Income approach GDP = Compensation of Employees + Gross Operating Surplus + TOPI less Subsidies  Production or “value added” approach GDP = Gross Output - Intermediate Inputs

bea.gov 3 GDP by Expenditures and Income Percent change GDP by Expenditures GDP by Income

bea.gov 4 Income approach

bea.gov 5 Components of income  Compensation of Employees  Wages and salaries  Employer contributions to pension and insurance funds  Gross Operating Surplus  Corporate profits, proprietors’ income, etc.  Consumption of fixed capital  Taxes on Production and Imports less Subsidies  Federal excise taxes; State and local sales taxes  Subsidies: grants by government to businesses and government enterprises

bea.gov Source data 6  Administrative data  Mostly data collected for non-statistical purposes  Financial statements  Regulatory data  Tax agencies  Utilize a wide range of concepts and definitions that may differ significantly from those used in the national accounts  Scope and coverage may differ over time because of changes in business accounting and tax rules

bea.gov Adjustments to source data 7  Significant adjustments are required to ensure coverage and consistency with national accounts concepts  Misreporting adjustments  Inventory valuation adjustments  Adjustments to exclude capital gains and losses  Capital consumption adjustments  Adjustments to industry classifications

bea.gov 8 Nonfarm proprietors’ income Total Nonfarm Proprietors’ Income Compared to Misreported Income Billions of dollars

bea.gov 9 Corporate profits

bea.gov 10 Wages and salaries [Growth rts.] Percent Change of Wages and Salaries

bea.gov 11 Wages and salaries Growth Rates of Real Value Added, 2007 QCEWCBP

bea.gov 12 Timing of source data GDP by Income ||||||||||||||||||||||||||||||||||||||||||||||||||| GDP by Expenditures 37% based on early source data 63% based on judgmental trend 23% based on judgmental trend 77% based on early source data

bea.gov 13 Timing of source data GDP by Income source data - estimates for Judgmental trend Early source dataDescription of early source data / estimation method (billions)(percent of GDP by Income) GDP by Income14,092.5 Compensation of employees7,863.6 Wages and salaries6,409.7 Nonsupervisory & production workers2, %BLS Current Employment Statistics: payroll survey Supervisory/nonproduction workers2, % Judgmental trend extrapolation based on payroll employment Government1, %BLS CES payroll survey employment and ECI Supplements1, % Judgmental trend extrapolation Taxes on production and imports, less subsidies973.9 Property taxes % Judgmental trend extrapolation Other %Federal Monthly Treasury data; Census data for sales taxes Net interest and misc. payments % FDIC data for commercial banks; judgmental trend extrapolation based on interest rates for most of the remainder Business current transfer payments % Judgmental trend extrapolation Proprietors' income1, % Judgmental trend extrapolation based on BLS payroll data, Census data, and other indicators Rental income of persons % Mixture of actual source data and judgmental trend extrapolation Corporate profits1, % Census Quarterly Financial Report, FDIC, and Compustat data Current surplus of government enterprises % Judgmental trend extrapolation Consumption of fixed capital1, % Judgmental trend extrapolation based on BEA capital stocks Total 62.6%37.4% Percent based on early source data that are conceptually consistent with annual/benchmark data 11.8%

bea.gov Statistical discrepancy 14  Both GDP by income and GDP by expenditures have measurement strengths and weaknesses  Consistency with economic concepts  Source data timing  Consistency with benchmark data  Availability of corresponding price measures  GDP by Expenditures = GDP by Income + Statistical Discrepancy

bea.gov Income and Production approaches  Income approach GDP = Compensation of Employees + Gross Operating Surplus + TOPI less Subsidies  Production approach GDP = Gross Output - Intermediate Inputs 15

bea.gov Income and Production approaches  Value added i = (Compensation i + Gross Operating Surplus i + TOPI less Subsidies i ) = (Gross Output i – Intermediate Inputs i )  GDP = ∑ i Value added i 16

bea.gov 17 Supply-Use framework

bea.gov 18 Quality weighting  Reliability indicators assigned to components of intermediate inputs and gross operating surplus by industry—in most cases, coefficients of variation  Less reliable components adjust more; more reliable components adjust less

bea.gov 19 Quality weighting

bea.gov 20 Looking forward …  Research on combining GDP by expenditures and GDP by income based on reliability of underlying source data  Research on the role of capital gains and losses in financial profits  Improved consistency across source data: data synchronization  New Quarterly GDP by industry data based on the Income and Production approaches