1. Major Changes in the Presentation of the U.S. National Accounts Brent Moulton, Yvon Pho, and Robert Yuskavage Bureau of Economic Analysis

2. 2 Major Initiatives Conversion to the North American Industry Classification System (NAICS) from Standard Industrial Classification (SIC) codes Movement towards greater consistency with SNA 1993 in classification and presentation

3. History of SIC System Created in 1938. Since its creation, U.S. has based its industry coding on this system Revisions took place every 10 to 15 years to reflect changing U.S. economy – Last revision occurred in 1987

4. Creation of NAICS SIC system heavily criticized – Inability to keep pace with changing domestic and international economies, particularly in services 1991 International Conference on the Classification of Economic Activities Joint effort with Mexico and Canada to develop NAICS

5. Motivations for NAICS Precise country comparisons of economic and financial statistics among U.S., Canada, and Mexico Passage of North American Free Trade Agreement (NAFTA) in 1994

6. NAICS vs. SIC NAICS improves over SIC: 1. NAICS uses a production-oriented conceptual framework 2. Increased comparability of statistical data 3. Greater flexibility and precision in capturing new and emerging economic activities 4. More frequent reviews--every 5 years 5. More accurate treatment of auxiliary establishments

7. NAICS and the International Standard Industrial Classification (ISIC) System NAICS more closely aligned to ISIC than the 1987 SIC system Both NAICS and ISIC emphasize classification by production technology

8. Primary Differences between NAICS and ISIC NAICS separately identifies an information sector – Recognizes the similarities in production of various types of information – UN Statistical Commission is considering incorporating this sector into next revision of ISIC NAICS uses a single, production-based framework in organizing industrial activities whereas ISIC uses multiple criteria

9. BEA data submissions to OECD OECD utilizes ISIC, thereby requiring data adjustments Under SIC system: – Data adjustments were made with little difficulty – Eased by the use of an international concordance – In some cases, conversion not perfect Example: fishing BEA is currently developing a concordance between NAICS and ISIC

10. Implementation Schedule Highly dependent upon implementation schedule of source data – Census Bureau 1997 Economic Census was first data converted to NAICS Census annual surveys converted beginning in 1998 – Bureau of Labor Statistics (BLS) Employment and wage data converted beginning in 2001 Producer price indices converted in 2004 – Internal Revenue Service (IRS) Data conversion beginning in 2000 Difficult 4-year transition period

11. BEA Release Schedule on a NAICS basis December 2002: – 1997 Benchmark Input-Output Accounts December 2003: – Comprehensive Revision of the NIPAs Data beginning in 1998 for type of income, employment, and hours by industry 2004: – GDP estimates (value added) and regional estimates (gross state product) by industry

12. Historical Time-Series BEA intends to convert industry estimates from SIC to NAICS for years prior to 1997 for GDP, investment, capital stock

13. Complications Limited availability of source data Heavy reliance on concordances Few direct one-to-one matches – Matrix of 1997 conversion weights for receipts, payroll, and employment available – Conversion matrix likely to become inaccurate over time due to fixed weights – Applicability of conversion matrix to data items not available in the matrix

14. Progress Made by Other Agencies Federal Reserve Board – Converted indices of industrial production for manufacturing back to 1972 Census Bureau – Converted monthly and annual series for wholesale and retail trade sales and inventories back to 1992 Bureau of Labor Statistics – Converted monthly payroll, employment, and related series for all detailed NAICS industries back to 1990 BEA will review these procedures for its conversion of investment, capital stock, and GDP by industry

15. Other issues Preparation of volume estimates Ensuring consistency of converted industry estimates to related series in the national accounts, including GDP estimates Appropriate level of industry detail in converted series

16. User Feedback Overall positive – NAICS is a more accurate reflection of todays economy than SIC Concerns – Transition creates breaks in the data – Future revisions to NAICS may lead to more frequent disruptions in data flow and time series

17. Presentation of the NIPAs BEA actively participated in preparing System of National Accounts (SNA) 1993 Since 1993 BEA has been moving towards consistency with SNA – Chain index – Saving and capital formation – Software

18. Changes for 2003 Comprehensive Revision Most definitions of transactions (and terminology) will conform with SNA. Some differences between the NIPAs and SNA 1993 will remain: – Sectoral definitions Treatment of government enterprises – Maintenance of non-SNA aggregates important to U.S. users

19. 7 NIPA Summary Accounts 1. Domestic income and product 2. Private enterprise income 3. Personal income and outlay 4. Government receipts and expenditures 5. Foreign transactions current 6. Domestic capital 7. Foreign transactions capital

20. Domestic Income and Product Account Shows GDP by final uses on the right side of the account, while uses of income are on the left Left side based on generation of income account Differences from SNA: – Private, government GFCF are separated – Government GFCF is aggregated with government final consumption

21. Private Enterprise Income Account Based on the SNA entrepreneurial income account Differs from SNA: – Government enterprises are not included – Payments of other current transfers are classified as uses – Dividends presentation differs from the SNA

22. Personal Income and Outlay Account Personal sector – Consolidation of the household and nonprofit institutions serving households Represents consolidation of SNAs : – Allocation of primary income – Secondary distribution of income – Use of disposable income accounts Differs from SNA: – Pension accounting – Disposable personal income accounting

23. Government Receipt and Expenditures Consolidates the SNA: – Allocation of primary income – Secondary distribution of income – Use of disposable income accounts General government enterprises are consolidated with general government

24. Remaining NIPA Summary Accounts Foreign transactions current account Domestic capital account Foreign transactions capital account Presentation is largely consistent with SNA convention

25. BEAs Commitment Harmonizing its national accounts with the international community Continuing in the role of being an effective resource for explaining the national accounts Guiding U.S. data users in the transition to SNA 1993 concepts

26. Plans for improvement Work with Federal Reserve Board to integrate NIPAs with flow of funds accounts Conference on Research in Income and Wealth--Architecture of national accounts – April, 2004, Washington DC – See http://www.nber.org/CRIW/