BEA improves consistency and timeliness of industry accounts

Business Economics, Oct, 2004 by Robert P. Parker

Measures of industry value added from the benchmark and annual input-output (I-O) accounts and from the gross-domestic-product (GDP)-by-industry accounts have been prepared by the Bureau of Economic Analysis (BEA) for many years. Until recently, however, they were inconsistent with one another and prepared on different time schedules. The inconsistency in the measures of value added by industry--as well as in the underlying industry measures of gross output, intermediate inputs, and income components of value added--reflected the use of different methodologies and different source data. These inconsistencies had made it very difficult for users of industry data to relate I-O information on interactions among producers and between producers and final users to the GDP-by-industry information on the income components of value added and on price and quantity indexes of value. They also limited BEA's ability to prepare these indexes using the most appropriate methodology.

In June 2004, BEA released integrated industry accounts for 1998-2002. This release marked the introduction of a new estimating methodology that eliminated the inconsistency in the two measures of industry value added, improved the accuracy of both accounts, and accelerated the availability of the annual I-O accounts. For the first time, both sets of accounts were prepared with fully consistent measures of gross output, intermediate inputs, and value added by industry. The concurrent release of the annual I-O and GDP-by-industry accounts meant that the 2002 annual I-O table was released two years ahead of the previous schedule. In addition, the new methodology imposed time series consistency on the annual I-O tables so that they will be more useful for analyses of trends over time. The new estimates also incorporated the results of the 2003 comprehensive revision of the national income and product accounts (NIPAs) and a new classification system based on the North American Industry Classification System (NAICS). (1) (Preliminary estimates of GDP-by-industry for 2003 also were released in June.)

This article describes BEA's industry accounts program, the old methodology that led to the inconsistencies, and the new methodology that led to the integration and eliminated the inconsistencies. (2)

BEA's Industry Accounts Program

BEA's industry accounts program includes benchmark and annual I-O accounts and annual GDP-by-industry accounts. I-O accounts show how industries provide input to, and use output from, each other to produce GDP. These accounts provide detailed information on the flows of the goods and services that make up the production processes of industries. I-O accounts can be used to study industry production or to provide information needed to prepare other economic statistics. The accounts are an important tool for analysis because they show the production functions of individual industries and the interactions among producers and between producers and final users (households, government, and business) in the economy. They can be used to estimate the direct and indirect effects of changes in final uses (personal consumption expenditures, gross private domestic investment, net exports, and government consumption and investment) on industries and commodities. For example, they can be used to estimate the effects of a strike or a natural disaster on the economy or, supplemented with additional information, to estimate the effects of an increase in U.S. exports on employment. The I-O accounts also can be used as a framework for preparing other economic statistics. Within BEA, they provide the GDP expenditure detail used to benchmark the NIPAs and the framework and data for the preparation of several satellite accounts. The Bureau of Labor Statistics (BLS) uses the I-O accounts to determine weights for detailed price indexes of the producer price index.

I-O accounts are prepared only in current dollars. Benchmark I-O accounts are prepared every five years, the most-recent released in 2002. Before the integration of the industry accounts, annual I-O accounts were usually released three years after the end of the reference year.

GDP-by-industry accounts, which are prepared annually, show the contribution, or value-added, of private industry and government to the nation's GDP. In contrast to the I-O accounts, the GDP-by-industry accounts focus on the industry composition of the economy and on value added by industry. Beginning with June 2004, preliminary estimates of the GDP-by-industry accounts will be released five months after the end of the reference year. As in past years, more complete estimates are released four to six months later. The GDP-by-industry accounts provide time series estimates of gross output, of intermediate inputs, and of value added by industry and the corresponding price and quantity indexes. They also provide time series estimates of the current-dollar income components of value added. GDP-by-industry accounts can be used to identify changes in the structure of the U.S. economy. They also can be used to identify changes in labor and capital shares and to study productivity and compare price changes across industries.