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The input-output structure of the U.S. economy, 1977.

THIS article presents the U.S. input-output (I-O) accounts for 1977. With this publication, the number of BEA benchmark I-O tables is increased to six, covering the years 1947, 1958, 1963, 1967, 1972, and 1977.

The tables presented in this article are in summary form; i.e., the underlying details is aggregated to 85 industries and commodities. The 1977 tables are also available in considerably greater detail, as are those for 1963, 1967, and 1972.

As described in the next section, the benchmark I-O tables and the national income and product accounts (NIPA's) are integrated conceptually. they are also intergrated statistically; the benchmark I-O tables provide the basis for the comprehensive revisions of the NIPA's.

The I-O tables for 1977 are based primarily on the detailed industry statistics collected by the Census Bureau in the 1977 economic censuses. They incorporate several improvements in the 1977 economic censuses that were recommended in the Gross National Product Data Improvement Project Report. The coverage of the censues was expanded to include medical, educational, and social services; new information was collected on purchased services (repairs, rentals, communication, etc.) for other covered industries; and for manufacturing, additional detail on materials consumed was collected. In addition, the I-O tables incorporate the improved adjustments for misreporting on tax returns and other improvements that are described in the article on the revised NIPA estimates for 1977 elsewhere in this issue of the SURVEY. I-O and the NIPA's

The basic relationship between I-O and the NIPA's are brought out in charts 4 and 5. Features of I-O that are bypassed in the following explanation are discussed in the section on "Definitions and Conventions."

The national income and product account, shown on the left side of chart 4, measures the production of the Nation, both in terms of final products and in terms of incomes generated in production. Final products consist of sales to consumers (personal consumption expenditures), sales to business on capital account and change in business inventories (gross private domestic investment), net sales to foreigners (net exports), and sales to government (government purchases). The sum of the final products equals GNP. The same total may be derived by summing the incomes generated in production (charges against GNP). These consist of compensation of employees, proprietors' income, rental income of persons, corporate profits, net interest, business transfer payments, indirect business taxes, current surplus of government enterprises less subsidies, and capital consumption allowances.

The right side of chart 4 shows the components of GNP and of charges against GNP, arranged in an I-O matrix format, i.e., a table in which information is presented in rows and columns. The row labeled "producers" shows the final products that make up GNP. The column headed "producers" shows the incomes that make up charges against GNP in three groups: compensation of employees; profit-type income, net interest, and capital consumption allowances; and indirect business taxes.

The equality on the left side of the chart between GNP and charges against GNP is maintained on the right side, where the total of the producers' row equals the total of the producers' column. On the right side, the terms final demand and value added are introduced. In I-O terminology, these are usually used in place of GNP and charges against GNP, respectively.

Chart 5 is an elaboration of the right side of chart 4. It shows, in addition to final demand and value added, an expansion of the producers-to-producers box, which was empty in chart 4, into a large shaded area with many boxes. These boxes represent consumption of commodities by industries. For example, the row for manufacturing shows the consumption of manufactured commodities by industries as well as final demand; the column for manufacturing shows raw materials, semifinished products, and services used by the manufacturing industry to generate its output as well as the value added in industry.

The chart also shows total output of each commodity and the total output of each industry. The former is the sum of the consumption of the commodity by industries and of the sales of the commodity to final demand (final demand includes the changes in the inventory of the commodity, wherever held). The latter is the sum of the consumption of commodities and of value added by the industry. For the economy as a whole, total output of commodities equals total output of industries. Uses of I-O

I-O has a variety of uses, ranging from the assessment of the sales potential of an individual firm to the assessment of broad economic programs.

The major contribution of I-O to economic analysis is that it facilitates measurement of both the direct and indirect repercussions of changes in demand. For example, an increase in consumer demand for autos will lead, in the first instance, to an increase in the production of autos. The increase in the production of autos will result in more steel production, which in turn will require more chemicals, more iron ore, more limestone, and more coal. The production of autos will also require more upholstery fabrics, and the increased production of these fabrics will require more natural fibers, more synthetic fibers, and more plastics. There will be even further impacts; for instance, the increased production of synthetic fibers will require more electricity and containers. These repercussions are only a few in the chain resulting from the initial change in consumer demand for autos. Through I-O analysis, it is possible to trace this intricate chain of demand through the economy, measuring the direct and indirect effects on production.

The information derived in this way can be used for estimating related requirements. For example, with the aid of supplementary information, requirements for additional production can be translated into requirements for additional employment, inventories, or fixed capital.

I-O has been used widely to help evaluate the impact of energy shortages and of changes in the patterns of energy use. It has also been used to study the impact on the environment of industrial emissions of pollutants associated with alternative levels and compositions of final demand. In conjunction with information on the geographic distribution of production, I-O can shed light on the regional implications of changes in the Nations GNP. It is also useful in cost-price analysis, by providing detailed information on cost-price structures and by permitting measurement of the direct and indirect repercussions of changes in the price of any given commodity or element of value added.

The most important assumption generally made in I-O analysis is that the inputs used in production are proportional to ouput. even though this assumption is not in full accord with real-world conditions, it is an adequate approximation for many purposes. Moreover, these relations, or "Input coefficients," as they will be referred to later, in general do not change rapidly. Accordingly, the I-O tables that are used to quantify these relations retain their usefulness for economic analysis over a period of several years. Description of I-O tables

The results of the 1977 I-O study are presented in five basic tables. The five tables are: (1) use table, (2) make table, (3) commodity-by-industry direct requirements table, (4) commodity-by-commodity total requirements tables, and (5) industry-by-commodity total requirements table. This section describes these tables and highlights some of the important I-O relatinships for 1977. The next section summarizes the definitions and conventions underlying the tables.

The use table (table 1).--The use table shows the value of each commodity used by each industry. The entries in a row represent the use by each industry of the commodity named at the beginning of the row and the sales of the commodity to final users. The entries in a column represent the value of the commodities--raw materials, semifinished products, and services--used, and the value added generated, in production by the industry named at the head of the column. The row total (total commodity output) is the output of the commodity (no matter which industries contributed to that output) and the column total (total industry output) is the output of the industry (no matter what was produced).

An interesting aspect of the U.S. economy shown in the rows is the wide variation in the proportion of commodity output sold directly to final users. Some commodities, such as footwear and other leather products (the primary product of I-O industry 34) and household furniture (I-O 22), were sold almost entirely to final users; therefore, the demand for these commodities is directly affected to a substantial degree by changes in final demand. Other commodities, such as wood containers (I-O 21) and iron and ferroalloy ores mining (I-O 5), were used almost entirely by industrial users. For such commodities, the connection between production and final demand is remote and can be traced only through the sales to final users made by industrial users of the commodity.

The rows of table 1 also show wide variation in the concentration of the use of a commodity by industries. Primary iron and steel (I-O 37) was used by 69 industries; none of them used more than $13,116 million, or 20.6 percent, of total production of iron and steel of $63,623 million. In contrast, metal containers (I-O 39) were used by 18 industries; one of them, food and kindred products (I-O 14), used $5,841 million, or 68. 3 percent, of total production of $8,551 million.

The pattern of the use of a commodity as shown in a row of table 1 may change over time, even if the input coefficients mentined earlier remain fixed.

The make table (table 2).--The make table shows the value of each commodity produced by each industry. The entries in a row represent the value of the commodities--both primary and secondary--produced by the industry named at the beginning of the row. The value of the primary product is shown in the diagonal cell (the cell where the row with a given number intersects the column with the same number). The secondary products of the industry (products primary to other industries) are shown in the other cells along the row. The entries in a column represent the dollar value of the production by each industry of the commodity named at the head of the column.

The row total is industry output and the column total is commodity output. The row totals of table 1 equal the column totals of table 2; the column totals of table 1 equal the row totals of table 2.

An industry's share of the production of a commodity can be calculated from the values in table 2 by expressing the entries in a given column as a percentage of the column total. For example, column 2( shows that the production of chemicals and selected chemical products (I-O 27) totaled $63,263 million, the chemical and selected products industry (row 27) produced $50,675 million, or 80.1 percent of the total.

The commodity-by-industry direct requirements table (table 3). --Each column of table 3 shows the inputs required by the industry named at the head of the column for commodities named at the beginning of each row to produce a dollar of that industry's output. These entries are the input coefficients. They also are referred to as the "direct requirements coefficients." They show that, for example, to produce a dollar of output, the chemicals and selected chemical products industry (I-O 27) required 26.2 cents of chemicals and selected chemical products, 2.5 cents of refined petroleum products (row 31), 1.7 cents of chemical and fertilizer minerals (row 10), etc.

Table 3 shows heavy interdependence among industries. Seventy-six of the industries shown in the table required inputs of at least 40 commodities, and 52 industries required inputs of at least 50 commodities. The motor vehicles and equipment industry (I-O 59), for example, required inputs of 65 commodities.

The information in tables 2 and 3 make it possible to trace the interconnections among final demand for commodities, production of commodities, and production of the industries producing the commodities. For example, assume that $1 million worth of household furniture is produced for sale to consumers. From table 2, it is seen that the household furniture industry (I-O 22) produced $9,915 million, or 97.8 percent, of the production of this commodity. Thirty-nine million dollars, or 0.4 percent, was produced by the rubber and miscellaneous plastics products industry (I-O 32), $36 million, or 0.4 percent, was produced by the miscellaneous manufacturing industry (I-O 64), and the remainder by 24 other industries. Based on these 1977 proportions, I-O 22 would initially supply $978,000 for sale to consumers, I-O 32 would supply $4,000, and I-O 64 would supply $4,000. The commodities required by I-O 22 will be traced first. Column 22 in table 3 shows that the household furniture industry would require $2,093 ($978,000 X 0.00214) of household furniture products, of which it would produce $2,047 (0.978 X $2,093) itself. Thus, industry 22 initially would have to produce $980,047 of household furniture; this production would require $60,782 ($980,047 X 0.06202) of fabrics (I-O 16), $120,653 ($980,047 X 0.12311) of wood products (I-O 20), and so on down column 22.

In turn, the production required by each of the industries producing the commodities required by the household furniture industry to meet the requirements placed upon it may be traced using the information in tables 2 and 3. Thus, to supply the fabrics, I-O industry 16 requires its own products (fabrics) plus agricultural products (I-O 2), chemicals and selected chemical products (I-O 27), plastics and synthetic materials (I-O 28), etc. I-O industries 17, 18, 19, and 28, which produce fabrics as secondary products, would also require commodities to produce their share of the production of fabrics.

In a similar manner, the repercusions resulting from the production by I-O 32 and I-O 64 of their shares of the $1 million of household furniture sold to consumers may be traced.

This tracing of the requirements that spread through the economy can be continued, and the total production required of each industry to produce $1 million of household furniture for consumers can be derived. However, the total production required can be calculated more easily by using tables in which the information shown in tables 2 and 3 has been combined and completely traced and summarized. Such tables are called total requirements tables. Requirements for commodities can be derived from the commodity-by-commodity total requirements table (table 4) and industry requirements from the industry-by-commodity total requirements table (table 5).

The commodity-by-commodity total requirements table (table 4). --Each column of table 4 shows the production required both directly and indirectly of the commodity named at the beginning of each row per dollar of delivery to final demand of the commodity named at the head of the column. $(n7$) These coefficients are referred to as "commodity-by-commodity total requirements coefficients."

Returning to the household furniture example, the total requirements (direct and indirect) for commodities to provide consumers with $1 million of household furniture can be calculated simply. Thus, the column for I-O commodity 22 shows that $1,002,220 ($1,000,000 X 1.00222) of household furniture products is required (row 22). Similarly, $103,520 of fabrics ($1,000,000 X 0.10352) is required (row 16), $182,440 of lumber and wood products ($1,000,000 X 0.18244) is required (row 20), etc.

The industry-by-commodity total requirements table (table 5). --Each column of table 5 shows the product (primary and secondary) required both directly and indirectly from the industry named at the beginning of each row per dollar of delivery to final demand of the commodity named at the head of the column. These coefficients are referred to as "industry-by-commodity total requirements coefficients."

returning again to the household furniture example, calculations similar to those made for commodity-by-commodity total requirements would be made. The column for I-O commodity 22 shows that to provide consumers with $1 million of household furniture, $980,950 ($1,000,000 X 0.98095) is required directly and indirectly from the household furniture industry (row 22), $105,570 ($1,000,000 X 0.10557) from the fabrics industry (row 16), $182,110 ($1,000,000 X 0.18211) from the lumber and wood products industry (row 20), etc. Definitions and conventions

Classification of industries and commodities.--The classification underlying the I-O industry/commodity categories is based on the Standard Industrial Classification (SIC), which classifies establishments into industries. For the purpose of the SIC, establishments are defined as economic units, generally at a single, physical location where business is conducted or where services or industrial operations are performed. Establishments are classified into an SIC industry on the basis of their principal product or service (primary products).

The I-O industry categories and their composition in terms of the 1977 SIC codes are given in appendix B. The industry categories used in the 85-level tables presented in this article are identified with two-digit I-O numbers. The more detailed industries in the 366- and 537-level tables are identified with four- and six-digit I-O numbers, respectively.

Seventy-seven of the 85 two-digit I-O industries are combinations of industries as defined in the Standard Industrial Classification Manual, 1977 edition. These I-O industries exclude the government-owned establishments contained in the industries as defined in the SIC. Those government-owned establishements that are defined as government enterprises in the NIPA's are included in two I-O industries--Federal Government enterprise (I-O 78) and State and local government enterprises (I-O 79). The remaining six I-O industries are "special industries" that are outside the purview of the SIC. They are noncomparable imports (I-O 80); scrap, used, and secondhand goods (I-O 82); rest of the world industry (I-O 83); household industry (I-O 84); and inventory valuation adjustment (I-O 85). The commodity classification is closely related to that described above for industries. For a given commodity, the code of the industry in which the commodity is the primary product is assigned as the commodity code. This code is then used to group the production of the commodity as a primary product and its production in other industries as a secondary product.

Trade.--The I-O tables do not trace actual flows of commodities to and from trade. If trade were shown as buying and reselling commodities, industrial and final users would make most of their purchases from a single source--trade. To show the links between the production of commodities and the purchases of them by industrial and final users, commodities are shown as if moving directly to the users, bypassing trade. Production in trade is measured b the margin, which is defined to consist of operating expenses, profits, sales taxes, excise taxes, and customs duties. The margin associated with a commodity is shown as a separate purchase from trade by the user of the commodity.

Valuation of transactions.--In the I-O tables in this article, the commodities are valued at producers' prices. Such prices exclude distribution costs (trade margins and transportation costs). They are defined to include excise taxes collected and paid by the producer. As in the case with trade, transportation costs are shown as a separate purchase by the user of the commodity. (This valuation differs from that used in the NIPA's. In the NIPA's goods and services are valued at purchasers' prices, which are producers' prices plus distribution costs.)

Secondary products.--In the I-O tables, secondary products are "redefined," that is, the secondary product and associated inputs are excluded from the industry that produced it and included in the industry in which it was primary. The redefinitions are of two kinds. The first kind is reflected in tables 1 and 2, and therefore in the three other tables. The second kind is reflected only in tables 4 and 5;

For the first kind of redefinition, the inputs associated with the redefined products were estimated on the assumption that the input coefficients applicable to that product were the same as those of the industry to which the product is primary. This kind of redefinition was used in the following cases.

1. Construction work performed by all industries was redefined to the construction industries.

2. Manufacturing in trade and service industries was redefined to the manufacturing industries.

3. Retail trade in service industries was redefined to the trade industries. Services in the trade industries were redefined to the service industries. Selected services were redefined within service industries.

4. Manufacturers' wholesale sales of purchased goods (resales) were redefined to the wholesale trade industries.

5. Rental activities of all industries were redefined to the real estate and rental industries.

The second kind of redefinition was used for all other secondary products. The inputs associated with the redefined product were estimated on the assumption that the input coefficients applicable to that product were the same as those of the industry from which the product was redefined.

Imports.--An imported commodity is treated in one of two ways in the I-O tables. Those that are comparable to commodities that are commercially produced in the United States are included in table 1 with the distribution of the output of the comparable domestically produced commodity. Their domestic port value is shown as a negative entry in the import column of final demand (column 95), so that the row total for the commodity equals the output of that commodity.

Other commodities--those that are not comparable to commodities commercially produced in the United States and those that are purchased abroad and used abroad by United States residents--are shown in the row for noncomparable imports (row 80) at foreign port value. The total value of all such imports is shown as a negative entry in the import column (row 80, column 95).

Inventories.--Table 1 shows change in business inventories for each commodity. Inventory change, which is a component of final demand, represents the change in inventory of the commodity wherever held and it is stated at book value. The inventory valuation adjustment, which converts inventory change from book value to replacement cost, is shown as a single entry for the total of all commodities (row 85, column 93). (The inventory accounting in I-O differs from that used in the NIPA's. The NIPA's show the change in inventories held by each industry valued at replacement cost.) Supplementary data

Final demand in the NIPA's is expressed at purchasers' prices rather than producers' prices, and in categories that differ from those used in I-O. Before I-O tables 4 and 5 can be used to measure the commodity or industry requirements arising from changes in the level and composition of GNP, the GNP (or components thereof) must be stated in the prices of the year to which the I-O tables refer, in the I-O commodity categories, and at producers' prices with separate entries for the trade margin and transportation costs. In I-O terminology, a bill of goods must be formulated. Supplementary data that are useful in establishing bills of goods are provided in tables a, B, C, and D.

Table A shows the I-O commodity composition in 1977 of each NIPA category of final demand, in producers' and purchasers' prices. For each commodity within a category of final demand, the table shows the trade margin and transportation costs included in the purchasers' price. This table may be used if the final demand to be analyzed is given in purchasers' prices and in the classification of the I-O table.

Table B shows the I-O commodity composition in 1977 of each of the 86 categories of personal consumption expenditures (PCE) in the NIPA's (table 2.4) in producers' and purchasers' prices. For each commodity within a PCE category, the table shows the trade margin and transportation costs included in the purchasers' price. This table may be used if the PCE to be analyzed is given in the classification of the NIPA's.

Table C shows the I-O commodity composition in 1977 of each of the 24 categories of producers' durable equipment (PDE) in the NIPA's (table 5.6) in producers' and purchasers' prices. For each commodity within a PDE category, the table shows the trade margin and transportation costs included in the purchasers' price. This table may be used if the PDE to be analyzed is given in the classification of the NIPA's.

Table D reconciles exports and imports as shown in the I-O tables with the preliminary revised NIPA estimates for 1977. The adjustments to merchandise remove goods from exports that are subsequently returned to the exporter and remove from imports goods that are subsequently reexported. The adjustments to fees and royalties reclassify the fees and royalties of affiliates so that all payments are treated as imports and all receipts are treated as exports. In the NIPA's, transactions between U.S. parents and their foreign affiliates are shown on a net basis in exports while transactions between foreign parents and their U.S. affiliates are shown on a net basis in imports.

Additional information that is useful in formulating bills of goods will be provided in the staff paper referenced in footnote 9.
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Publication:Survey of Current Business
Date:May 1, 1984
Words:4169
Previous Article:The national income and product accounts: preliminary, revised estimates, 1977.
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Appendix B.
Appendix B:.

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