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Annual revision of the U.S. national income and product accounts.

* Annually, 1989-91

* Quarterly, 1989:I-1992:I

In this issue of the Survey of Current Business, the Bureau of Economic Analysis (BEA) presents revised estimates of the national income and product accounts (NIPA'S) for 1989-91 and the first quarter of 1992. As is usual in annual NIPA revisions, source data that are more complete, more detailed, or otherwise more appropriate than the information previously available have been incorporated into the estimates, and seasonal factors have been updated. In addition, several methodological changes have been made.

The first section of this article discusses the impact of the revisions on several measures of economic activity, the second section provides a summary of the revisions and the major source data underlying them, and the third section describes the changes in methodology and summarizes the source data and methods used to prepare the NIPA estimates. Appendix A to this article shows, in current dollars, the revised annual estimates and the revisions for the five summary accounts of the NIPA'S. A set of most of the NIPA tables follows this article; the missing tables are scheduled to appear in the September 1992 SURVEY (see the text and list of tables beginning on page 46). An index to the complete set of NIPA tables begins on page 117.

Impact of the Revisions

The revised estimates show that during 1989-91 the U.S. economy grew at a slower pace than that indicated in the previously published estimates. From the fourth quarter of 1988 to the first quarter of 1992, the growth rate (average annual rate of increase) for real gross domestic product (GDP) was revised down 0.2 percentage point to 0.6 percent (table 1). The growth rate for real final sales of domestic product was also revised down 0.2 percentage point to o.8 percent. Among major components, the average annual rates of change for personal consumption expenditures (PCE) for services, nonresidential producers' durable equipment (PDE), and imports of services were lower than previously estimated; the rates of change for exports of services and for Federal nondefense purchases were higher.(1) [TABULAR DATA OMITTED]

From the first quarter of 1991 to the first quarter of 1992, both the revised and previously published estimates show that real GDP grew 1.6 percent. There were revisions in the quarterly increases: In the third quarter of 1991, the growth in real GDP was revised down 0.6 percentage point to 1.2 percent. In the other three quarters, the growth in real GDP was revised up 0.2 or 0.3 percentage point.

The revised estimates show that inflation was slightly higher than previously indicated. From the fourth quarter of 1988 to the first quarter of 1992, the average annual rates of increase in the price indexes (fixed weights) for both gross domestic purchases and gross domestic product were revised up 0.2 percentage point to 4.1 percent (table 2). Among major components, the only substantial revision was an upward revision in the average annual rate of change for the price index for PCE services. [TABULAR DATA OMITTED]

Business cycle.--The expansion in real GDP that ended in the third quarter of 1990 on the basis of the previously published estimates ends one quarter earlier on the basis of the revised estimates. The change in real GDP in the third quarter of 1990 was revised from an increase of 0.2 percent to a decrease of 1.6 percent.

As a result of the substantial downward revision in the third quarter of 1990, the contraction in real GDP lasts one quarter longer and is deeper than previously estimated. Based on the revised estimates, the decrease in real GDP from the second quarter of 1990 to the first quarter of 1991 is 2.2 percent (not at an annual rate); as previously published, the decrease from the third quarter of 1990 to the first quarter of 1991 was 1.6 percent. The increased severity of the contraction was mainly accounted for by PCE and nonresidential PDE. Gross saving and investment.--Revisions in gross saving were relatively small (see appendix A, account 5). As a percentage of gross national product (GNP), gross saving was revised down 0.1 percentage point to 14.1 percent for 1989, up 0.1 percentage point to 13.0 percent for 1990, and down 0.2 percentage point to 12.4 percent for 1991. In 1991, private saving is substantially higher than previously estimated, and the government deficit is substantially larger.

The composition of gross saving is considerably different on the revised basis. Personal saving was revised down substantially for all 3 years; as a result, the personal saving rate (personal saving as a percentage of disposable personal income) was revised down 0.4 percentage point to 4.0 percent for 1989, 0.8 percentage point to 4.3 percent for 1990, and 0.5 percentage point to 4.7 percent for 1991. Undistributed corporate profits with inventory valuation and capital consumption adjustments was revised up substantially for 1990 and 1991; consumption of fixed capital, both corporate and noncorporate, was revised up for all 3 Years.

The government deficit (NIPA basis), at $193.3 billion in 1991, is $21.7 billion larger than previously estimated. The Federal deficit, at $210.4 billion, is $8.8 billion larger; the State and local surplus, at $17.1 billion, is $12.9 billion smaller. Within State and local, the "other funds" deficit--that is, the total deficit minus the surplus of social insurance funds--on the revised basis is larger in 1991 than in 1990; previously, it was smaller in 1991 than in 1990.

Revisions in gross investment--that is, gross saving less the statistical discrepancy--were relatively small. Within gross investment, gross private domestic investment was revised down for all 3 years, and net foreign investment was revised up for all 3 years.

Summary of the Revisions

The incorporation of newly available source data and of changes in methodology leads to revisions in current-dollar estimates and in the prices and quantities used to prepare constant-dollar estimates. In turn, these revisions lead to revisions in constant-dollar estimates. This section describes the revisions in the annual current-dollar, price, and constant-dollar estimates and then briefly describes the revisions in the quarterly estimates.

Annual current-dollar estimates

Table 3 summarizes the current-dollar revisions in major NIPA components. It provides a guide to the revisions by identifying the subcomponent series in which revisions were $2.0 billion or more and by listing the major source data that underlie the revised estimates. (For a list of the principal source data and estimating methods used in preparing the current-dollar estimates, see table 7.) It should be noted that newly available source data lead to a revision in the level of an estimate not only for the year into which they are directly incorporated, but also usually in the levels for subsequent years. The discussion in this section follows the sequence of entries in table 3. [TABULAR DATA OMITTED]

GDP.--The level of current-dollar GDP was revised up for all 3 years: $6.8 billion, or 0.1 percent, for 1989; $8.4 billion, or 0.2 percent, for 1991; and $4.9 billion, or 0.1 percent, for 1991. The largest dollar revisions among the major components of GDP were in nonresidential producers' durable equipment and in net exports of goods and services.

Personal consumption expenditures (PCE) for goods.--PCE goods was revised up for all 3 years: $2.2 billion for 1989, $5.2 billion for 1990, and $0.5 billion for 1991. Upward revisions in "goods other than motor vehicles and parts" more than accounted for both the 1989 and 1990 revisions. For 1990, the largest upward revisions in this category were in food and in gasoline and oil. The revision in food resulted from the incorporation of revised Census Bureau retail sales data; the revision in gasoline and oil largely reflected newly available data on gasoline consumption from the Federal Highway Administration. Net purchases of used autos was revised down for 1990, reflecting newly available information on sales and margins of used auto dealers from the Census Bureau 1990 Annual Retail Trade Survey and revised data from trade sources on the stock of autos held by consumers.

PCE for services.--PCE services was revised up 3.0 billion for 1989, up $0.7 billion for 1990, and down $1.8 billion for 1991. Revisions in personal business services more than accounted for the upward revisions for 1989 and 1990; personal business services was also revised up substantially for 1991, but not enough to offset downward revisions in other types of services. Within personal business services, the incorporation of newly available information from a variety of regular sources led to upward revisions in two components--"services furnished without payment by financial intermediaries except life insurance carriers and private noninsured pension plans" and "expense of handling life insurance."

Among the other types of PCE services, transportation services was revised down for all 3 years; the revisions mainly reflected the incorporation of new trade source data on receipts from auto repairs at franchised car dealers for 1989 and 1990, revised data for 1990 and new data for 1991 on receipts from repairs at auto repair shops from Census Bureau service annual surveys, and new Bureau of Labor Statistics (BLS) data on automobile leasing for 1990. Net foreign travel also was revised down for all 3 years, reflecting revisions to the BEA balance of payments accounts (BPA'S). Household operation was revised up for 1990, reflecting the incorporation of newly available information from a variety of regular sources. For 1991, medical care services was revised up, reflecting the incorporation of newly available data on physician services from the Census Bureau 1991 Service Annual Survey. Hospitals was revised little for all 3 years, as downward revisions in nonprofit hospitals, reflecting expense data from the American Hospital Association, offset upward revisions in government hospitals, reflecting newly available data from Census Bureau surveys of government finances. Religious and welfare activities was revised down for 1990, primarily reflecting data on day care from a BLS survey.

Nonresidential structures.--Nonresidential structures was revised little for 1989, Up $2.4 billion for 1990, and up $5.5 billion for 1991. For both 1990 and 1991, upward revisions in industrial buildings and in petroleum and natural gas exploration were partly offset by downward revisions in electric light and power. The upward revisions in industrial buildings reflected revised Census Bureau data on the value of new construction put in place, and the upward revisions in petroleum and natural gas exploration reflected new trade source data on drilling and exploration costs and on drilling footage. The downward revisions in electric light and power reflected newly available data from a variety of regular sources.

Nonresidential producers' durable equipment (PDE).--Nonresidential PDE was revised down for all 3 years: $2.8 billion for 1989, $11.8 billion for 1990, and $14.6 billion for 1991. The downward revisions were widespread among the components of PDE. For 1989, the revisions reflected a revision to a BEA adjustment to account for undercoverage in manufacturers' shipments. For 1990 and 1991, the revisions primarily reflected the introduction of shipments data from the 1990 Annual Survey of Manufactures. For 1991, the revisions also reflected newly available shipments data from the Census Bureau Current Industrial Report covering civilian aircraft.

Residential fixed investment.--Residential fixed investment was revised little for 1989 and 1990 and was revised down $4.8 billion for 1991. The 1991 revision was largely accounted for by a downward revision in improvements, reflecting the incorporation of information from BLS and Census Bureau surveys.

Change in business inventories.--The change in business inventories was revised down $2.7 billion for 1989, up $6.3 billion for 1991, and up $8.3 billion for 1991. The change in farm inventories was revised up for all 3 years, reflecting the incorporation of revised estimates from the U.S. Department of Agriculture.

The change in nonfarm inventories was revised down for 1989, up for 1990, and up for 1991.

The downward revision for 1989 was accounted for by "other" inventories--that is, inventories of industries other than manufacturing and trade--which were affected by the incorporation of newly available inventory data from Internal Revenue Service (IRS) tabulations of corporate tax return data for 1989. For 1990 and 1991, upward revisions in the changes in manufacturing and in retail trade inventories more than offset downward revisions in the change in "other" inventories: The revisions in manufacturing and retail trade inventories reflected newly available data on inventory book values from Census Bureau annual surveys, revised inventory data from Census Bureau monthly surveys, and revised motor vehicle inventories from trade sources; the revisions in "other" inventories reflected the incorporation of inventory data from IRS tabulations of corporate tax return data for 1990 and from the Census Bureau Quarterly Financial Report for mining.

Net exports of goods and services.--Net exports of goods and services was revised up for all 3 years: $3.2 billion for 1989, $5.5 billion for 1990, and $8.9 billion for 1991. The revisions were due primarily to upward revisions in exports. For 1989 and 1990, the upward revisions in exports were almost entirely in services. For 1991, an upward revision in exports of services was partly offset by a downward revision in merchandise exports. For 1989, imports was revised little; for 1990, an upward revision in imports partly offset the upward revision in exports; and for 1991, a downward revision in imports contributed to the upward revision in net exports. The revisions in exports and imports mainly reflected revisions to the BPA'S: For merchandise, the revisions reflected the incorporation of newly available regular source data; for services, the revisions, which were primarily in the BPA travel and passenger fares and "other private services' categories, reflected the introduction of major improvements in estimating methodologies and new source data. (For more information about the revisions in the BPA'S, see the section "Changes in methodology.")

Government purchases.--Government purchases was revised up for all 3 years: $3.8 billion for 1989, $0.3 billion for 1990, and $3.0 billion for 1991. For 1989, the revision was primarily in State and local government purchases, reflecting newly available data from Census Bureau surveys of government finances. For 1990, a downward revision in State and local government purchases, which was more than accounted for by structures, was offset by an upward revision in Federal Government purchases. For 1991, the revision was primarily in Federal Government purchases, as newly available budget data for fiscal years 1991 and 1992 led to upward revisions in many nondefense components.

Net receipts of factor income.--Net receipts of factor income from the rest of the world, which is excluded from GDP but included in GNP, was revised up for all 3 years: $11.8 billion for 1989, $10.0 billion for 1990, and $4.3 billion for 1991. For all 3 years, receipts were revised up more than payments; these revisions, which were mainly in interest income, reflected the revisions to the BPA'S. The largest contributor to the upward revisions in receipts of interest was revised estimates of receipts on U.S. nonbank firms' claims on unaffiliated foreign banks. The largest contributor to the upward revisions in payments of interest was new estimates of payments on U.S. banks' claims denominated in foreign currencies. The revisions in both receipts and payments were reduced by the introduction in the BPA'S of an adjustment to direct investment income to convert depreciation, depletion, and exploration and development costs from a historical-cost to a current-cost basis.

GNP.--The level of GNP was revised up for all 3 years: $18.6 billion, or 0.4 percent, for 1989; $18.4 billion, or 0.3 percent, for 1990; and $9.1 billion, or 0.2 percent, for 1991. For all 3 years, the revisions in GNP were larger than those in GDP because of the upward revisions in net receipts of factor income.

Gross national income (GNI) and the statistical discrepancy. --GNI measures the costs incurred and the profits earned in the production of GNP, and it is equal to GNP minus the statistical discrepancy. The level of GNI Was revised up for all 3 years: $14.8 billion, or 0.2 percent, for 1989; $21.0 billion, or 0.4 percent, for 1990; and $6.4 billion, or 0.1 percent, for 1991. These revisions were about the same as those in GNP; the statistical discrepancy was revised only slightly for all 3 years.

Within GNI, the revisions for all 3 years were more than accounted for by upward revisions in corporate profits with inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj), in consumption of fixed capital, and in indirect business tax and nontax liability. For 1989, these upward revisions were partly offset by downward revisions in rental income of persons with CCAdj; for 1990 and 1991, they were partly offset by downward revisions in net interest and in nonfarm proprietors' income with IVA and CCAdj.

Compensation of employees.--Compensation of employees was revised down $1.1 billion for 1989, up $0.9 billion for 1990, and up $2.6 billion for 1991. For all 3 years, wages and salaries was revised up, and supplements to wages and salaries was revised down. For 1991, the revision in wages and salaries was largely in the Federal Government, reflecting revised data from the office of Personnel Management for civilian employees and new budget data from the Office of Management and Budget for military employees. For all 3 years, the revisions in supplements to wages and salaries were more than accounted for by other labor income, primarily in pension and profit-sharing plans, and reflected newly available IRS tabulations of corporate tax return data for 1989 and 1990.

Proprietors' income with iva and CCAdj.--Proprietors' income with iva and CCAdj was revised little for 1989, down $6.3 billion for 1990, and down $11.7 billion for 1991. Nonfarm proprietors' income with iva and CCAdj was revised up for 1989, down for 1990, and down for 1991; these revisions reflected revised 1989 and newly available 1990 IRS tabulations of sole proprietorship and partnership tax return data. The CCAdj for nonfarm proprietors' income was revised down for all 3 years (see the discussion of consumption of fixed capital).

Rental income of persons with CCAdj.--Rental income of persons with CCAdj was revised down $5.6 billion for 1989, up $0.6 billion for 1990, and Up $2.3 billion for 1991. Rental income of persons (without CCAdj) was revised down for 1989, up for 1990, and up for 1991; these revisions largely reflected a new estimating procedure for mortgage interest expense (see the section "Changes in methodology"). The CCAdj for rental income of persons was revised down for all 3 years (see the discussion of consumption of fixed capital).

Corporate profits with iva and CCAdj.--Corporate profits with IVA and CCAdj was revised up for all 3 years: $11.1 billion for 1989, $42.7 billion for 1990, and $39.5 billion for 1991. Corporate profits with iva was revised down for 1989, up for 1990, and up for 1991. Revisions in domestic profits reflected the incorporation of newly available IRS tabulations of corporate tax return data for 1989 and 1990 (see the section "Changes in methodology"). Revisions in rest-of-the-world profits reflected the incorporation of revisions to the BPA'S. The CCAdj for corporate profits was revised up for all 3 years (see the discussion of consumption of fixed capital).

By industry, domestic profits (with iva) of financial corporations was revised up for all 3 years and was primarily accounted for by commercial banks and savings and loan associations. Domestic profits of nonfinancial corporations was revised down for 1989, little for 1990, and up for 1991. For 1989, profits of all major nonfinancial industry groups were revised down. For 1990 and 1991, upward revisions in manufacturing were mostly offset by downward revisions in trade and "other" industries. Profits from the rest of the world was revised up for all 3 years. The upward revisions reflected revisions to the BPA'S that raised the estimates of profits from U.S. investment abroad for 1989 and 1990 and that lowered the estimates of profits from foreign investment in the United States for all 3 years.

Net interest.--Net interest was revised little for 1989, down $29.4 billion for 1990, and down $30.7 billion for 1991. For all 3 years, net monetary interest was revised down, and net imputed interest was revised up. For 1989, a downward revision in net monetary interest was offset by an upward revision in net imputed interest. Monetary interest paid and received by domestic business were both revised up, reflecting newly available IRS tabulations of corporate tax return data. Rest-of-the-world monetary interest paid and received were both revised up, reflecting revisions to the BPA'S. The revision in net imputed interest was mostly in interest paid by investment companies, reflecting newly available IRS data. For 1990, a large downward revision in net monetary interest was partly offset by an upward revision in net imputed interest. A downward revision in monetary interest paid by domestic business was more than offset by an upward revision in interest received by domestic business; these revisions reflected new IRS tabulations of sole proprietorship, partnership, and corporate tax return data. The revision in net imputed interest was in interest paid by investment companies, reflecting newly available IRS data. For 1991, the revisions were similar to those for 1990.

Consumption of fixed capital--Consumption of fixed capital---that is, economic depreciation--was revised up for all 3 years: $5.9 billion for 1989, $8.o billion for 1990, and $3.2 billion for 1991. The revisions reflected revised BEA estimates of fixed investment and prices.

Capital consumption allowances--that is, tax-return-based depreciation--was revised up considerably more than the economic depreciation measure for all 3 years. These upward revisions largely reflected newly available IRS tabulations of corporate tax return data for 1989 and 1990. For 1990 and 1991, upward revisions for corporations were partly offset by downward revisions for nonfarm sole proprietorships and partnerships, reflecting newly available IRS tabulations of tax return data for these entities for 1990.

The CCAdj--which is derived as the difference between the tax-return-based measure and the economic measure of depreciation--was revised up for all 3 years.

Nonfactor incomes.--Nonfactor incomes--indirect business tax and nontax liability, business transfer payments, and subsidies less current surplus of government enterprises--were revised up for all 3 years: $4.2 billion for 1989, $4.3 billion for 1990, and $1.2 billion for 1991. Upward revisions in indirect business taxes were partly offset by downward revisions in business transfer payments; subsidies less current surplus of government enterprises was revised little for all 3 years. The revisions in indirect business taxes reflected newly available Census Bureau data from surveys of State and local government finances and from quarterly surveys of tax revenues. The revisions in business transfer payments reflected the incorporation of newly available IRS tabulations of corporate tax return data on corporate gifts to nonprofit institutions for 1989 and 1990.

National income.--National income was revised up for all 3 years: $4.8 billion for 1989, $8.7 billion for 1990, and $2.0 billion for 1991. The upward revision for 1989 was more than accounted for by corporate profits; rental income of persons with CCAdj was revised down. For 1990 and 1991, corporate profits was also revised up, but these revisions were partly offset by downward revisions in proprietors' income and in net interest.

Personal income and its disposition.--The pattern of revisions in personal income--revised little for 1989, down $15.6 billion for 1990, and down $6.1 billion for 1991--partly reflected the previously described revisions in the components of national income that are included in personal income--wages and salaries, other labor income, proprietors' income, and rental income of persons. It also reflected revisions in personal dividend income, personal interest income, transfer payments to persons, and personal contributions for social insurance. Personal dividend income was revised up for all 3 years, reflecting the incorporation of the newly available IRS tabulations of corporate tax return data for 1989 and 1990 and the incorporation of data from publicly available corporate financial statements for 1991. Personal interest income was revised little for 1989 and was revised down substantially for 1990 and 1991, largely reflecting the aforementioned revisions in the estimates of net interest. For 1991, the revision in personal interest income was considerably smaller than the revision in net interest because of upward revisions in net interest paid by government and in interest paid by persons.(2) The revision in net interest paid by government was more than accounted for by revisions in State and local government interest receipts, reflecting newly available data from Census Bureau surveys of government finances. The revision in interest paid by persons reflected revised data from the Federal Reserve Board on consumer installment credit. Transfer payments was revised little for 1989 and 1990 and up substantially for 1991. The revision for 1991 primarily reflected newly available data from the Health Care Financing Administration on State and local government payments for medicaid; Federal Government payments for medicare also were revised up, reflecting new budget data for fiscal year 1992.

Personal tax and nontax payments was revised up for all 3 years: $1.6 billion for 1989, $0.3 billion for 1990, and $2.6 billion for 1991. Payments to the Federal Government were revised up for 1991, reflecting newly available data from the Social Security Administration and the U.S. Treasury Department.

Reflecting the revisions in personal income and in personal tax and nontax payments, disposable personal income (DPI) was revised down for all 3 years: $1.6 billion for 1989, $15.9 billion for 1990, and $8.8 billion for 1991.

Personal outlays--PCE, interest paid by persons, and personal transfer payments to rest of the world (net)--was revised up for all 3 years: $12.5 billion for 1989, $14.2 billion for 1990, and $10.8 billion for 1991. As discussed above, PCE was revised up for 1989, up for 1990, and down slightly for 1991. Both interest paid by persons and personal transfer payments to rest of the world (net) were revised up for all 3 years. The revisions in transfer payments largely reflected BPA revisions in personal remittances of the foreign-born population of the United States.

Personal saving--the difference between DPI and personal outlays--was revised down for all 3 years: $14.0 billion for 1989, $30.2 billion for 1990, and $19.7 billion for 1991.

Annual price estimates

Revisions in fixed-weighted price indexes result from the incorporation of newly available source data and of methodological changes. Source data that affect these indexes consist not only of price indexes, which are used for deflation, but also of current-dollar estimates and quantity data, which are used for preparing constant-dollar estimates by quantity extrapolation or direct valuation (see the section "Updated summary methodologies").

Newly available price index information includes revised price indexes for domestic, exported, and imported computers, for foreign travel, for single-family houses, and for defense goods and services. Newly available current--dollar estimates affected the price estimates for three types of PCE services: "Services furnished without payment by financial intermediaries except life insurance carriers and private noninsured pension plans," health insurance, and brokerage charges. Newly available quantity data affected the price estimates for petroleum and natural gas exploration, for margins on used autos, for change in farm inventories, and for Federal Government and State and local government employee compensation.

The level of the GDP fixed-weighted price index was revised up for all 3 years: 0.2 index point to 108.6 for 1989, 0.4 index point to 113.5 for 1990, and 0.5 index point to 118.1 for 1991. Reflecting these revisions in level, the annual percent increase in the index was revised up 0.1 percentage point to 4.4 percent for 1989, 0.2 percentage point to 4.5 percent for 1990, and 0.1 percentage point to 4.0 percent for 1991. (Revisions in the price change for gross domestic purchases were about the same as those for GDP.) Revisions in the annual percent changes in the price indexes for components of GDP were generally small; they were largest for PCE services for 1991, nonresidential structures for 1990, exports of goods and services for 1991, and imports of goods and services for 1990 and 1991 (table 4). [TABULAR DATA OMITTED]

The change in the prices of PCE services was revised up 0.5 percentage point to 5.3 percent for 1991. The revision was in services furnished without payment by financial intermediaries except life insurance carriers and private noninsured pension plans, in brokerage charges, and in net foreign travel. All but the revision in net foreign travel primarily reflected revised data on quantities. The revisions in the prices used to deflate net foreign travel reflected newly available consumer price indexes for foreign countries.

The change in the prices of nonresidential structures was revised up 0.5 percentage point to 3.1 percent for 1990. The upward revision was attributable to petroleum and natural gas exploration; both the current-dollar estimates and the quantity measure of constant-dollar exploration were revised to reflect trade source information on footage drilled.

The change in the prices of exports was revised up 0.5 percentage point to 2.1 percent for 1991. This revision primarily reflected the revisions in the prices for foreign travel that were noted above.

The change in the prices of imports was revised down 0.6 percentage point to 3.7 percent for 1990 and up 0.7 percentage point to 1.0 percent for 1991. Both revisions were largely in foreign travel. For 1990, the revision also reflected corrected prices of petroleum and products and of automotive vehicles, engines, and parts.

Annual constant-dollar estimates

In general, revisions in real GDP reflect four factors: (1) Revisions in current-dollar components of GDP whose real estimates are prepared by deflation, (2) revisions in the prices used in deflation, (3) revisions in the quantities used to estimate components of real GDP by extrapolation or direct valuation, and (4) revisions caused by shifts in the composition of current-dollar GDP. The following tabulation provides a breakdown of the percent revisions in the level of real GDP and of the revisions in the annual percent change of real GDP. In the tabulation and in the analysis that follows, factors (3) and (4) are combined as "other" revisions.
 Percent revision Revision in annual
 in level percent change
 1989 1990 1991 1989 1990 1991
Current-dollar revisions 0.1 0.2 0.1 0.2 0.1 -0.1
Less: Price revisions 0 -.1 0 -.1 -.1 -.1
Plus: Other revisions -.1 -3 -.5 -.2 -.2 -.3
Equals: Constant-dollar revisions 0 -.2 -.6 0 -.2 -.5


The level of real GDP was unrevised for 1989, was revised down 0.2 percent for 1990, and was revised down 0.6 percent for 1991. Reflecting these revisions in level, the annual percent change in real GDP Was unrevised at 2.5 percent for 1989, was revised down 0.2 percentage point to 0.8 percent for 1990, and was revised down 0.5 percentage point to -1.2 percent for 1991 (table 4). For 1989, current-dollar revisions were offset by "other" revisions; for 1990, price and other' revisions accounted for the downward revision; for 1991, all three factors contributed to the revision.

For 1990, the downward revision in the change in real GDP was more than accounted for by PCE services and nonresidential PDE. For 1991, the downward revision was largely accounted for by PCE services, with other sizable downward revisions in PCE goods, nonresidential PDE, and residential fixed investment.

Revisions in components of real GDP.--The annual percent change in PCE was unrevised for 1989 and 1990 and was revised down 0.5 percentage point to -0.6 percent for 1991. The downward revision for 1991 largely reflected current-dollar revisions both in nondurable goods and in services. Within nondurable goods, the downward revision was mainly in food; within services, it was mainly in household operation other than electricity and gas, in transportation, and in "other services."

The change in nonresidential fixed investment was revised down for all 3 years: 0.5 percentage point to 1.7 percent for 1989, 1.6 percentage points to -0.4 percent for 1990, and 0.4 percentage point to -7.0 percent for 1991. These revisions largely reflected downward revisions in current-dollar PDE. Within PDE, industrial equipment and "other equipment" were revised down for all 3 years, and information processing and related equipment was revised down for 1990 and 1991.

The change in residential investment was unrevised for 1989, was revised down 0.4 percentage point to -9.1 percent for 1990, and was revised down 2.2 percentage points to 12.6 percent for 1991. The downward revision for 1990 largely reflected price revisions in single-family construction; the downward revision for 1991 largely reflected current-dollar revisions in improvements to existing structures.

The change in exports of goods and services was revised up o.6 percentage point to 11.9 percent for 1989, up 0.3 percentage point to 8.1 percent for 1990, and down 0.5 percentage point to 5.8 percent for 1991. The upward revisions for 1989 and 1990 reflected current-dollar revisions in services. The downward revision for 1991 largely reflected current-dollar revisions in merchandise, mainly in the "other goods" end-use category.

The change in imports of goods and services was unrevised for 1989, was revised up 0.8 percentage point to 3.0 percent for 1990, and was revised down 0.4 percentage point to -0.1 percent for 1991. For 1990, the upward revision was attributable to price revisions in both services and merchandise; in merchandise, the price revisions were mainly in automotive vehicles, engines, and parts and in petroleum and products. For 1991, the downward revision was more than accounted for by a downward revision in services that reflected both current-dollar revisions and price revisions.

The change in government purchases was revised up 0.5 percentage point to 2.0 percent for 1989, down 0.4 percentage point to 2.8 percent for 1990, and up 0.3 percentage point to 1.2 percent for 1991. The revisions largely reflected current-dollar revisions in State and local government purchases, mainly in structures.

Quarterly estimates

Quarterly estimates are affected by annual NIPA revisions in three major ways: (1) Adjustments to reflect revisions in the annual estimates, (2) incorporation of new and revised source data (including the updating of seasonal factors) that are used to indicate quarterly patterns, and (3) changes in the methodology used to prepare the quarterly estimates.

In general, the quarter-to-quarter patterns of changes in BEA'S measures of real output and prices are not markedly different on the revised basis (table 5). An exception is the revision in real GDP in the third quarter of 1990, which shifts the change in that quarter from positive to negative (see "Business cycle" in the section "Impact of the Revisions"). [TABULAR DATA OMITTED]

For real GDP, the revisions in the 13 quarterly percent changes (at annual rates) averaged o.6 percentage point (without regard to sign). Changes for three quarters were revised by 1.0 percentage point or more. For the third quarter of 1989, the change in real GDP was revised down 1.1 percentage points to o percent; this revision was largely accounted for by PCE. For the first quarter of 1990, the change in real GDP was revised up 1.1 percentage points to 2.8 percent; this revision was accounted for by nonfarm inventory investment. For the third quarter of 1990, real GDP was revised down 1.8 percentage points to -1.6 percent; this revision was more than accounted for by nonfarm inventory investment, PCE, and fixed investment.

For gross domestic purchases prices, the revisions in the 13 quarterly percent changes (at annual rates) averaged 0.2 percentage point (without regard to sign). In only one quarter was the revision larger than 0.4 percentage point: For the third quarter of 1990, the increase in gross domestic purchases prices was revised up 0.6 percentage point to 5.6 percent. This revision reflected upward revisions in the prices of PCE, nonresidential fixed investment, and residential fixed investment.

Methodology

This section of the article describes several changes in the source data and in the methods used to prepare the NIPA estimates that were incorporated in this annual revision, and it updates previously published tables showing methodologies for current- and constant-dollar estimates of GDP. This annual revision also involved, in a few cases, abbreviated methodologies--that is, the use of source data that were less detailed than those usually incorporated in an annual revision.(3)

Changes in methodology

U.S. balance of payments accounts revisions.--The BEA balance of payments accounts (BPA'S) provide the basis for the foreign transactions entries in the NIPA'S. (Differences between the BPA'S and the NIPA'S are identified in NIPA table 4.5 in this issue of the Survey.) In last month's regular annual BPA revision, BEA incorporated newly available data from regular sources and introduced a number of major improvements that involved definitional changes, new estimating methodologies, and new source data. (For a description of the annual BPA revision, see "U.S. International Transactions, First Quarter 1992 and Revised Estimates for 1976-91" in the June 1992 Survey.) The BPA definitional changes had previously been incorporated into the NIPA'S and so did not affect this annual NIPA revision. These changes were the following: (1) The recording of receipts and payments for "other private services" and for royalties and license fees on a gross rather than on a net basis, and (2) the recording of direct investment income (both dividends and interest) and portfolio dividend payments before deduction of nonresident taxes withheld and, as an offsetting entry, the recording of these nonresident taxes in unilateral transfers.

With one exception, the BPA changes that reflected new estimating methodologies and new source data did affect the NIPA estimates. The exception was the change that removed capital gains and losses from direct investment income; NIPA estimates of factor incomes already excluded such gains and losses. Incorporation of the other BPA changes led to revisions in the following NIPA components: Exports and imports of services, receipts and payments of factor income, and transfer payments to rest of the world (net).

For exports and imports of services, the changes were mainly in the travel and passenger fares and "other private services" components. In travel and passenger fares, these changes primarily reflected the incorporation of new data on travel payments and receipts between the United States and Mexico, revised data on Canadian expenditures in the United States, and new data on interline settlements between U.S. and foreign airlines. In "other private services," the changes reflected the incorporation of preliminary results of the 1991 BEA benchmark survey of transactions with unaffiliated foreigners.

For receipts and payments of factor income, the changes were in both direct and portfolio investment income. In direct investment income, the basis for measuring depreciation, depletion, and exploration and development costs was changed from a historical-cost to a current-cost basis by introducing a current-cost adjustment. In portfolio investment, new (or revised) estimates were introduced for dividend and interest receipts on U.S. holdings of foreign stocks and bonds, for interest receipts on U.S. nonbank firms' claims on unaffiliated foreign banks, and for interest receipts and payments on U.S. banks' claims and liabilities denominated in foreign currencies.

For transfer payments to rest of the world (net), the change was in transfer payments by persons, and it reflected the incorporation of new estimates of personal remittances of the foreign-born population of the United States.

The introduction of the revised BPA estimates also affected other NIPA components and several aggregates. The revisions in travel and passenger fares within exports and imports of services led to revisions in the net foreign travel component of PCE services and, thus, in GDP. The revisions in receipts and payments of factor income led to revisions in GNP, corporate profits, and net interest and, thus, in national income, personal interest income, and personal income. The revisions in personal transfer payments to rest of the world (net) led to revisions in personal outlays and saving and in net foreign investment.

Because this annual NIPA revision--as usual--covered only 3 years, the BPA revisions were brought into the NIPA'S at the best level beginning with the estimates for 1989; the estimates for earlier years were not revised. As a result, there are discontinuities in the NIPA estimates. The extent of these discontinuities is quantified in table 6. For GDP, the change from 1988 to 1989 in current dollars is understated by $0.5 billion; for GNP, the change is overstated by s3.9 billion. (Revisions to the NIPA'S for earlier years will be made in the next comprehensive NIPA revision.)

Mortgage interest.--The revised estimates of rental income of persons and net interest reflect an improved procedure for estimating mortgage interest. Annual and quarterly estimates of mortgage interest are now estimated using the product of mortgage debt outstanding, which is based on Federal Reserve Board data, and a BEA estimate of the effective rate of interest. The result is then used to extrapolate a benchmark estimate of mortgage interest paid based on data from the Census Bureau decennial survey of residential finance.

In the revised estimates, the effective rate of interest was calculated using distributions of mortgage debt outstanding that accounted for adjustable-rate mortgages (ARM'S) and that incorporated new information on mortgage refinancing and other types of terminations. Under the old procedure, the effective rate did not account for the impact of interest-rate changes on ARM'S and did not adequately reflect the impact of refinancing. The new procedure uses information from the Department of Housing and Urban Development on mortgage originations and terminations by date of origination and from the Federal Housing Finance Board on interest rates and originations of fixed- and adjustable-rate mortgages.

Internal Revenue Service (IRS) tabulations of corporate tax return data.--The revised estimates of several NIPA components reflected the incorporation of newly available tabulations of corporate tax return data for 1989 and 1990. (Table 7 identifies the components for which these tabulations are source data.) Since 1982, the IRS tabulations of corporate tax returns have been available only for the first of the 3 years covered by annual NIPA revisions--1989 for this year's revision. This year, IRS has compiled preliminary tabulations for 1990, the second of the 3 years. These preliminary tabulations were based on about three-quarters of the full sample of returns; complete tabulations for 1990 and preliminary tabulations for 1991 will be available for next year's annual revision.

State and local government wages and salaries. --Beginning with the estimates for 1991, an improved methodology was introduced for the quarterly estimates of State and local government wages and salaries. Under the new procedure, these wages and salaries are estimated as the product of State and local government employment from the monthly Bureau of Labor Statistics (BLS) establishment survey and earnings of State and local government employees from the quarterly BLS Employment Cost Index survey. Previously, these wages and salaries had been estimated judgmentally.

Updated summary methodologies

Table 7 identifies the principal source data and estimating methods used to prepare the current-dollar estimates of the product- and income-side components of GDP, and table 8 identifies the principal source data and estimating methods used to prepare the constant-dollar estimates of the product-side components. These tables have been updated to reflect the methodological changes introduced in the comprehensive benchmark) revision released last December and those introduced this month.(4)

Current-dollar estimates of GDP.--The components in table 7 are as shown in the national income and product account (see appendix A, account 1), starting on the product side and proceeding to the income side. The subcomponents in table 7, with their 1991 dollar values, are grouped according to the methodology used to prepare them.

The column in table 7 for the annual estimates covers the several annual estimates in the estimating cycle; the major differences in methodology as the estimates move through the three annual revisions to a benchmark revision are few enough to condense into the table. For example, for most goods in PCE (the first item on the product side), the table indicates one methodology for benchmark years and another for all other years.

The column for the quarterly estimates is a condensation in two respects. First, it refers to the advance estimate for the current quarter--that is, the estimate prepared in the first month following the end of the quarter. That one estimate, rather than all three of the current quarterly estimates, is described because more attention focuses on the first look" at the quarter. Second, even for the advance estimate, the column does not detail how many months of source data are available nor whether the data are subject to revision by the source agency.

Table 7 lists source data representing a variety of different economic measures--wages and salaries, premiums, expenses, interest rates, mortgage debt, tax collections, unit sales, housing stock, employment, and average price, to name a few. For most components, the source data are value data"; that is, they embody both the quantity and price dimensions that are required for current-dollar estimates. In these cases, the methodology indicated in table 7 is the adjustment of the value data to derive estimates consistent with NIPA definitions and coverage.

When value data are not used in preparing an estimate, the table indicates the combination of data with separate quantity and price dimensions that is used to derive the required value estimate (as well as any major adjustments needed to derive estimates consistent with NIPA definitions and coverage). On the product side, a "physical quantity times price" method is used for several components. For example, the estimate for new autos is prepared as unit sales times average list price. An "employment times earnings times hours' method and variations of a "stock of assets /liabilities times an interest rate" method also are used for several components.

Some of the source data shown in table 7 for the annual estimates are used to interpolate and extrapolate the levels established by source data that are viewed as final, and all of the source data shown for the advance quarterly estimates are used to extrapolate the level of the preceding quarter.(5) In addition to using indicator series, as is the case when specific source data are listed in the table, extrapolation and interpolation may be based on trends, as is the case when judgmental trend" is listed in the table.

Constant-dollar estimates of GDP.--Table 8 shows which of three methods is used to prepare constant-dollar estimates and indicates the source data with which it is implemented.(6) The method used for most of GDP is deflation. In deflation, constant-dollar estimates are obtained by dividing the most detailed current-dollar components by appropriate price indexes, with the base period--at present, the year 1987--equal to 100.

The other two methods, quantity extrapolation and direct base-year valuation, are similar to each other in that they both use quantity data. For quantity extrapolation, constant-dollar estimates are obtained by extrapolating the base-year current-dollar estimates in both directions from the base period (1987) by quantity indicators. For direct base-year valuation, constant-dollar estimates are obtained by multiplying base-year prices by actual quantity data for each period.

The subcomponents in table 8 are the same as those shown in table 7, except where more detail is needed to highlight differences in methodology for constant-dollar estimates. For table 8, the distinction between annual and quarterly methodology is far less important than it is for the current-dollar methodology, and major differences between the annual and quarterly source data are noted within the individual entries.

Tables 7 and 8 and appendix A follow.

Data Availability

The revised NIPA estimates, along with the estimates for 1988 and earlier years (back to 1959), are available on diskette and magnetic tape. For order information, write to the National Income and Wealth Division (BE-54), Bureau of Economic Analysis, Washington, DC 20230, or call (202) 523-0669.

1. Users should be aware that because--as usual--this annual NIPA revisions only covered 3 years, discontinuities can occur between the estimates for 1988 (and earlier years), which were not revised, and the estimates for 1989 (and later years), which were revised. As discussed in the section "Methodology," this annual revision resulted in small discontinuities in the NIPA component estimates that are based on the recently revised BEA balance of payments accounts.

2. The annual estimates of personal interest income are calculated as net interest plus net interest paid by government plus interest paid by persons. This indirect procedure is used because personal interest income cannot be estimated reliably on the basis of the existing source data for interest received by persons.

3. The abbreviated methodologies were used in preparing the following estimates: Nonresidential producers' durable equipment except for computers and trucks for 1990-91, nonfarm inventory valuation adjustment for 1989-91, and Federal Government purchases for 1991. As part of next year's annual revision, BEA Will replace these abbreviated methodologies with the usual methodologies. BEA does not expect the revisions that result from this replacement to be large.

4. See "The Comprehensive Revision of the U.S. National income and Product Accounts: A Review of Revisions and Major Statistical Changes," Survey 71 (December 1991): 37-40.

5. Extrapolation is a method of extending estimates from one period forward (or backward) in time to other periods. In simple terms, extrapolation applies a percent change--either the percent change in the indicator series or the percent change in the trend--to the level of the preceding (following) period. Interpolation is a method of filling in estimates between two periods. Interpolation applies a more complex mathematical formula--there are several in use--to preserve the pattern of the indicator series consistent with the level of the source data viewed as final.

6. With few exceptions, BEA does not prepare constant-dollar estimates of income measures because, unlike product measures, price indexes cannot be associated with them. Three exceptions are disposable personal income and, as presented in the "Business Cycle Indicators" section of the Survey, personal income and corporate profits. In these cases, the estimates are adjusted for price change by reference to the prices of the goods and services on which the income is spent BEA derives constant-dollar net national product and national income by preparing constant-dollar estimates of consumption of fixed capital and of the nonfactor incomes and then subtracting these estimates from constant-dollar GNP.
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Publication:Survey of Current Business
Date:Jul 1, 1992
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