Major Changes in the Major Changes in the Presentation of the U.S. National Presentation of the U.S. National

AccountsAccounts

Brent Moulton, Yvon Pho, and

Robert Yuskavage

Bureau of Economic Analysis

2 Major Initiatives2 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

History of SIC SystemHistory 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

Creation of NAICSCreation of NAICSSIC 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

Motivations for NAICSMotivations 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

NAICS vs. SICNAICS 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

NAICS and the International NAICS and the International Standard Industrial Standard Industrial

Classification (ISIC) SystemClassification (ISIC) System

NAICS more closely aligned to ISIC than the 1987 SIC system

Both NAICS and ISIC emphasize classification by production technology

Primary Differences between Primary Differences between NAICS and ISICNAICS 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

BEA data submissions BEA data submissions to OECDto 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

Implementation ScheduleImplementation 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

BEA Release Schedule BEA Release Schedule on a NAICS basison a NAICS basis

December 2002:– 1997 Benchmark Input-Output Accounts

December 2003:– Comprehensive Revision of the NIPA’s

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

Historical Time-SeriesHistorical Time-Series

BEA intends to convert industry estimates from SIC to NAICS for years prior to 1997 for GDP, investment, capital stock

ComplicationsComplications

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

Progress Made by Progress Made by Other AgenciesOther 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

Other issuesOther 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

User FeedbackUser Feedback

Overall positive– NAICS is a more accurate reflection of today’s

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

Presentation of the NIPA’sPresentation of the NIPA’s

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

Changes for 2003 Changes for 2003 Comprehensive RevisionComprehensive Revision

Most definitions of transactions (and terminology) will conform with SNA.

Some differences between the NIPA’s and SNA 1993 will remain:– Sectoral definitions

Treatment of government enterprises

– Maintenance of non-SNA aggregates important to U.S. users

7 NIPA Summary Accounts7 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

Domestic Income and Domestic Income and Product AccountProduct 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

Private Enterprise Private Enterprise Income AccountIncome 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

Personal Income and Personal Income and Outlay AccountOutlay Account

Personal sector– Consolidation of the household and nonprofit

institutions serving households

Represents consolidation of SNA’s :– Allocation of primary income– Secondary distribution of income – Use of disposable income accounts

Differs from SNA:– Pension accounting – Disposable personal income accounting

Government Receipt Government Receipt and Expendituresand 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

Remaining NIPA Remaining NIPA Summary AccountsSummary Accounts

Foreign transactions current accountDomestic capital account Foreign transactions capital account

Presentation is largely consistent with SNA convention

BEA’s CommitmentBEA’s 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

Plans for improvementPlans for improvement

Work with Federal Reserve Board to integrate NIPA’s 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/