Preview of the comprehensive revision of the annual industry accounts: integrating the annual input-output accounts and the gross-domestic-product-by-industry accounts

Survey of Current Business, March, 2004 by Brian C. Moyer, Mark A. Planting, Mahnaz Fahim-Nader, Sherlene K.S. Lum

IN JUNE, the Bureau of Economic Analysis (BEA) will release the initial results of its comprehensive revision of the annual industry accounts. The centerpiece of this revision is the integration of the annual input-output (I-O) accounts and the gross-domestic-product-(GDP)-by-industry accounts for 1998-2002. For the first time, the annual I-O accounts and the GDP-by-industry accounts will be released concurrently and will present consistent measures of gross output, intermediate inputs, and value added by industry.

Integration can be achieved through a variety of methods. For example, many countries produce integrated annual I-O accounts and GDP-by-industry accounts by assuming that the industry ratios of intermediate inputs to gross output do not change from the most recent set of benchmark I-O accounts; these ratios are then used to estimate a time series of value added by industry from annual source data on gross output by industry. BEA has taken a different approach in developing an integration methodology because of the richness of the source data that are available in the United States; for example, the Bureau of the Census, the Bureau of Labor Statistics, and the Internal Revenue Service provide data that can be used to estimate value added by industry. However, the quality of these source data varies by data series and by industry; as a result, BEA has developed an integration methodology that ranks the available source data by quality and estimates a balanced set of annual I-O accounts and GDP-by-industry accounts that incorporate a weighted average of these source data on the basis of their relative quality. In this manner, BEA's integrated annual I-O accounts and GDP-by-industry accounts will provide a more consistent and a more accurate set of estimates.

This integration is the most recent improvement in a series of improvements to the industry accounts. As outlined in its strategic plan, BEA continues to make significant improvements to its industry accounts. These improvements include the following: Resuming the publication of the annual I-O accounts; accelerating the release of the annual I-O accounts to within 3 years after the end of the reference year; expanding the GDP-by-industry accounts to include gross output and intermediate inputs for all industries; developing an accelerated set of GDP-by-industry accounts that are available with a lag of just 4 months after the end of the reference year; and continuing to work closely with the Bureau of the Census on new initiatives to improve the quality and the timeliness of the source data used to prepare the industry accounts. With these improvements, general improvements to the quality of industry source data, and improvements to data-processing systems, BEA is now ready to integrate the annual I-O accounts and the GDP-by-industry accounts. (1)

This comprehensive revision undertakes the integration of the annual I-O accounts and the GDP-by-industry accounts, but BEA's long-run goal is the "full" integration of all the industry accounts, including the benchmark I-O accounts, and the integration of the industry accounts with the national income and product accounts (NIPAs). (2) Integration with the NIPAs will allow the industry accounts to provide annual feedback to the NIPAs that could potentially improve the commodity composition of GDR Full integration is expected in the 2008-2010 timeframe when the necessary data on intermediate inputs by industry will be available from the 2002 Economic Census and from the annual surveys that are currently being collected and tabulated by the Bureau of the Census.

This article presents the integration methodology that is being used for 1998-2002 and for future updates. An article in the June issue of the SURVEY OF CURRENT BUSINESS will describe the results of the comprehensive revision to the annual industry accounts, including the conversion to the 1997 North American Industry Classification System (NAICS) back to 1998 and the release of the accelerated GDP-by-industry estimates for 2003. (3)

Highlights of the integration methodology are as follows.

* It allows BEA to incorporate the most timely and highest quality source data into both the annual I-O accounts and the GDP-by-industry accounts.

* The annual I-O accounts and the GDP-by-industry accounts will be released concurrently for 1998-2002, and for the first time, both sets of accounts will present fully consistent measures of gross output, intermediate inputs, and value added by industry.

* The quality of the annual industry accounts will be improved because the accounts will be prepared within a balanced I-O framework; that is, all the components of the accounts will be in agreement within a balanced row-and-column framework.

* The release of the annual I-O accounts will be accelerated by 2 years in a sequence of two steps that will be completed by the fall of 2004, when they will be released 1 year after the end of the reference year.

* For the first time, the 1998-2002 annual I-O accounts will be a consistent time series; they will be more useful for analyses of trends over time.