Integration of U.S. macroeconomic accounts: a progress report

Business Economics, April, 2005 by Robert P. Parker

The Commission of the European Communities et al. (1993), on behalf of the United Nations, and the International Monetary Fund (1993) developed international guidelines for macroeconomic accounts. They recommended the preparation for each major sector of an integrated set of current accounts (production and income), accumulation accounts (capital, financial, and other changes in volume), a revaluation account, and a balance sheet. The existing U.S. accounts, parts of which are prepared by the Bureau of Economic Analysis (BEA) and the Federal Reserve Board (FRB), are not complete and are not consistent because in some cases the two agencies use different estimating methodologies and different definitions. Last year, the two agencies reported on a major collaborative effort to expand the accounts, resolve methodological differences, and improve consistency with the international guidelines. (Teplin, et al., 2004) The feature of their report was a draft set of complete accounts for 1985-2002. In addition, BEA published an article in December 2004 on its efforts to improve consistency between the national income and product accounts (NIPAs) and the international guidelines. (Mead, et al., 2004).

This article reviews the results of this joint agency effort to provide complete and integrated U.S. accounts. It discusses the new data prepared as a result of this effort and the proposed work plan to eliminate some of the major differences within the U.S. accounts and between the U.S. accounts and the new international guidelines.

Background

International guidelines

The international guidelines for national economic accounting were released in 1993 by the United Nations (System of National Accounts) and the International Monetary Fund (Balance of Payments Accounts). The System of National Accounts (SNA) provides a comprehensive framework for recording all of the stocks and flows in a nation's economy, including international transactions. It also covers financial accounts and balance sheets as well as input-output tables. The balance of payments manual (BPM), which is fully consistent with the SNA, provides similar accounts for international transactions.

The SNA is designed as an integrated system in that it uses consistent definitions, classifications, and accounting conventions for all sectors of the economy. As shown in Figure 1, for each sector, the SNA summarizes the transactions of groups of institutions into a sequence of accounts that flow from one to another--e.g., production generates income, which is used to finance consumption and saving. Saving is used for capital formation or for acquiring financial assets and liabilities. The accumulation of non-financial and financial assets and liabilities and the revaluation of assets and liabilities explain the differences between opening and closing balance sheets. All together, the integrated accounts track the sources of change in a sector's net worth. The five major SNA sectors are non-financial corporations, financial corporations, general government, nonprofit institutions serving households, and households. The BPM provides a full set of integrated accounts for the rest-of-the world sector that are fully consistent with the SNA.

The United States and most other countries are in various stages of providing a fully integrated set of macroeconomic accounts. For example, among the developed countries, Australia, Canada, and the United Kingdom prepare integrated accounts, although they do not cover all of the SNA sectors; and there are some differences in the definitions of sectors. (1) In Europe, the European Central Bank is coordinating development of quarterly financial accounts for the Euro area for the non-financial sector, insurance companies, and pension funds and is working to expand the integrated system to other sectors.

Looking ahead, the United Nations Statistical Commission is reviewing the SNA and related guidelines, such as those in the BPM, for a revision to be released in 2008. Among the proposals currently under consideration are the following: treat spending on defense weapons systems as investment in fixed assets, include employee stock options as compensation, recognize a net return to government-owned fixed assets, include government-guaranteed loans in the balance sheet, and treat expenditures on research and development as capital formation. (2)

Changing the U.S. accounts

Integrating the U.S. accounts to facilitate various types of analysis has a long history. For many years, economists have called for increased consistency between the different U.S. accounts and for a complete set of related balance sheets. In the early 1980s, Richard and Nancy Ruggles (1982) prepared a set of accounts that related the income and product flows to balance sheets. (3) Commenting on their effort, James Tobin noted "their experiment ... illustrate[d] the well-known problem. It is difficult to reconcile data from the different sources, and disturbingly large, unexplained discrepancies remain ... Conceptual integration needs to be matched by a concerted effort to diagnose and remedy these inconsistencies." Subsequently, Robert Eisner (1986) and Michael Boskin, et al. (1989), among others, wrote on the need for integration. Although these critics recognized that the existing U.S. accounts covered many elements of such a set of integrated accounts, the missing pieces were critical for many types of analysis. Moreover, because these accounts are presented in different publications and use different terminology for the same concept, combining them was difficult, even for the sophisticated user. The critics thought that integration of the accounts would provide a common terminology and a uniform presentation that highlighted connections between the activities described in separate accounts.