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

Business Economics, April, 2005 by Robert P. Parker

There are larger relative differences in net lending/net borrowing for the non-financial corporate business sector. In most years, both measures were consistent as to whether the sector was a net lender or net borrower. Since 1990, there have been four years where the measures differed in this regard. In 2000, the capital account measure showed significantly more net borrowing. Teplin, et al. noted the boundary between the non-financial and financial business sectors as a likely major cause for the discrepancy, in part reflecting differences in source data for the NIPAs and the FFAs. For the current accounts, the NIPAs rely heavily on tax return data. For the financial account, however, the FFA uses tax return data as well as data from surveys and regulatory information. In the NIPAs, corporations that file consolidated returns that include both non-financial and financial subsidiaries are recorded either in the financial or non-financial business sectors, depending on the predominant business. In the financial accounts, adjustments are made with the supplementary information to split the data from these returns into separate financial and non-financial corporations. The issue is particularly important for non-financial firms with captive finance companies. Evidence of this issue being a major source of the difference is that the net lending/net borrowing estimates of the two sectors combined show more consistency. Draft SNA-USA did not include any adjustment for this boundary issue.

In addition to this boundary problem, Teplin, et al. reported that part of the difference between net lending/net borrowing measures in the non-financial corporate business sector likely reflects the recording of "miscellaneous" financial assets in the financial accounts. At present, the FFAs include changes to good-will and other intangible assets in flows of miscellaneous financial assets. Such flows are large and positive during periods of heavy merger activity and large and negative during periods of economic weakness. The impact of changes in such assets is not reflected in the Draft SNA-USA current and capital accounts. The adoption of the international guidelines would result in the allocation of a portion of the changes in the value of such assets to the other changes in volume account. Although the reclassification of these assets into revaluations and/or other changes in volume is likely to have a sizable impact on the statistical discrepancy, changes were not made in Draft SNA-USA for these accounting issues.

For government sectors. Draft SNA-USA shows mixed results. For the federal government sector, net lending/net borrowing estimates are close for all years, reflecting a generally high quality of available source data. These estimates also reflect changes incorporated into Draft SNA-USA to improve the use of these data, especially when special timing adjustments, such as for the payment of unemployment insurance benefits, are needed for the current account. However, net lending/net borrowing estimates for the state and local government sector show significant discrepancies. For this sector, the source data used for the U.S. accounts tend to be less timely and of lower quality. The authors concluded that the coordination of estimating procedures using the available state and local government data could reduce the size of these discrepancies.