BEA's mid-decade strategic plan: a progress report

Survey of Current Business, June, 1996

IN APRIL 1995, the Bureau of Economic Analysis (BEA) finalized the development of a strategic plan for maintaining and improving its national, regional, and international accounts.(1) The final version of the plan was based on a comprehensive review of the accounts conducted in 1994 and a draft plan developed in coordination with the public and with other statistical agencies. The Mid-Decade Strategic Plan places needed improvements to the accounts in the context of a comprehensive multiyear plan that will enable BEA to continue to provide timely, accurate, and relevant information to its users. The first section of this progress report summarizes the strategic plan, the second section reports on the accomplishments to date, and the final section discusses work plans for the next year. As work on specific projects is completed, additional progress reports will appear in the SURVEY OF CURRENT BUSINESS.

Summary of the Plan

In the plan, the needed improvements to the accounts are grouped into three major areas: New and improved measures of output; better measures of investment, saving, and wealth; and improved coverage of international transactions.

New and improved output measures.--Improved measures of output are critical for informed national debate on such issues as the economy's long-term growth potential and the impact of technological changes on economic growth and productivity. In addition, the improvements will result in more accurate measures of growth in real GDP and prices, which may have important implications for the Federal budget.

To improve the output measures, the plan includes the following actions: Introduction of a weighting scheme for calculating real GDP that eliminates the bias in the estimates that results from the "substitution effect"; extension of the use of quality-adjusted prices in real GDP; development of an improved conceptual basis for the measurement of the output of difficult-to-measure goods and services; acquisition of more reliable and more comprehensive source data for the measurement of output; modification of estimating procedures in order to reduce the revisions to the initial quarterly and annual estimates of GDP; incorporation of a new industry classification system that provides an updated and more consistent framework for analyzing the structure and organization of production; and modernization of the GDP and related accounts to improve their analytical usefulness and their international comparability.

Better measures of investment, saving, and wealth. --Improvements in these measures will provide a broader and more accurate picture of the Nation's investment, saving, and capital stock and will allow for an integrated analysis of such issues as productivity, domestic and international capital flows, returns on investment, and capital formation.

To provide better measures of investment, saving, and wealth, the plan includes the following actions: Expansion of the definition of the investment component of GDP to include spending on structures and durable equipment by government and spending on computer software; development of improved measures of depreciation and capital stock; and better integration of real and financial accounts.

Improved coverage of international transactions. --Improvements will provide necessary information to fill large gaps in BEA's coverage of international transactions caused by rapid growth and integration in world markets and rapid advances in computer and communications technology. Such improvements are especially important in improving the data used for trade, investment, and monetary policy and for financial regulation.

To improve the coverage of international transactions, the plan includes the following actions: Extension and revision of existing surveys, and development of new estimating methods, to cover new products, services, and financial instruments; development of new surveys; and extension of data exchanges with the statistical agencies of other countries and with central banks.

Accomplishments to Date

New and improved output measures

As part of the comprehensive revision of the national income and product accounts (NIPA'S) released in January 1996, BEA implemented the following major improvements to the output measures:

* Chain-type measures of real output and prices that use weights of adjacent years replaced fixed-weighted measures, which use weights of a single year for all periods. The chain-type measures allow for the effects of changes over time in relative prices and in the composition of output; thus, they eliminate the substitution bias that results from using fixed-weighted measures.

* Quality-adjusted prices of exports and imports for semiconductors were prepared and incorporated into the accounts. (Quality-adjusted measures of the output and prices of the semiconductor industry are being incorporated into the improved estimates of GDP by industry, which will be released this summer.)

In addition, in cooperation with the Census Bureau and the Bureau of Labor Statistics (BLS) as well as with Statistics Canada and Mexico's Instituto Nacional de Estadistica, Geografia e Informatica, BEA has nearly completed work on an improved industrial classification system--the North American Industrial Classification System. The proposed new system, which will provide the basis for modernizing BEA'S industry accounts, has been published for public comment in the Federal Register.(2)