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Fixed private capital in the United States.

BEA has prepared revised annual estimates of fixed private capital stock. The revised estimates represent a considerable improvement over previous BEA estimates of fixed private capital. First, the estimates for the entire 1925-81 period have been revised because new information has bene incorporated into the perpetual inventory calculations used to derive them. The new information is on service lives, allocations of investment by major industry group and legal form of organization, and intersector transfers of used assets. Second, for 1947-81, industry detail has been expanded from three major industry groups (farms, manufacturing, and nonfarm nonmanufacturing) to 60 industries (essentially the two-digit industry detail of the 1972 Standard Industrial Classification). Moreover, the validity of the perpetual inventory estimates has been tested by comparisons with independently derived estimates of fixed private capital based on book value data from the 1977 economic censuses and the Internal Revenue Service (IRS) Statistics of Income.

The industry capital stock estimates provide information for several types of analyses. They may be used to determine the relations between capital and employment and also between capital and output, and to analyze how these relations differ by industry over time. They may also be used to derive estimates of capital productivity and total factor productivity by industry, and they are useful in assessing the adequacy of capital in particular industries. They also provide a measure of how the industrial and, consequently, a measure of one determinant of industry growth.

With the expansion of the industry detail, two characteristics of BEA's capital stock estimates have taken on increased importance. First, leased capital assets are recorded in the stock of the lessor (owner) rather than in that of the lessee (user). Leased assets are recorded in this manner in order to be consistent with the national income and product accounts (NIPA) measures of product and income by industry, which record the income and depreciation associated with these assets in the industry of the owner.

Second, the industrial classification of the BEA stock estimates is based on the 1972 Standard Industrial Classification, and data for the estimates are for "establishments" rather than "companies." Establishments, as defined for the Standard Industrial Classification, are economic units, generally at a single physical location, where business is conducted or where services or industrial operations are performed. Companies are one or more establishments owned by the same legal entity or group of affiliated entities. Establishments are classified into an SIC industry on the basis of their principal product or service, and companies are classified into an SIC industry on the basis of the principal SIC industry of all their establishments. Because large multiestablishment companies typically own establishments that are classified in different SIC industries, industrial distributions of the same item can be significantly different. For residential capital, each dwelling is considered to be an establishment; farm dwellings owned by farm operators are classified in the farm industry, and all other dwellings are classified in the real estate industry.

In this article's first section, the revised stock estimates for 1925-81 are compared with the previous BEA stock estimates. Next, the derivation of the investment flows used to derive the stock estimates, including the expanded industry detail for 1947-81, is described. Then, the derivation of the stock estimates from the investment flows is described. Finally, comparisons between the revised stock estimates and two sets of independently derived book value estimates are described.

Following the text of the article, estimates of current-dollar gross and net stocks of fixed private capital by industry for 1947-81 are shown, separately for nonresidential and residential capital, in tables 1 and 2. Corresponding stocks in constant (1972) dollars are shown in tables 3 and 4. Current-dollar gross and net stocks of fixed nonresidential private capital by major industry group and legal form of organization for 1925-81 are shown, separately for equipment and structures, in tables 5 and 6. Corresponding stocks in constant (1972) dollars are shown in tables 7 and 8.

Comparison of REvised and Previous BEA Stock Estimates

Both the revised and previous BEA stock estimates were derived using the perpetual inventory method and investment streams based on the same NIPA investment flows for the years since 1929; however, the two sets of estimates of constant-dollar gross stocks differ, as can be seen in table A. First, the revised total stock estimates are generally higher, because of the introduction of more detailed and more accurate service lives that are generally longer than those used in previous BEA studies. The greatest proportionate effect of the new lives is for 1934-45, when investment was less than discards. With the resumption of substantial investment after 1945, this effect became less pronounced. Second, the revised corporate estimates are generally higher, because of the introduction of more detailed and more accurate allocations of investment by legal form of organization.

By major industry group, the comparisons in table A show considerably different patterns over the 1925-81 period. For farms for the years since 1929, the revised estimates are lower than the previous estimates because of the introduction of a shorter service life for the largest category of farm equipment (agricultural machinery, except tractors). For manufacturing, the revised estimates are lower than the previous estimates through the 1960's and higher after 1970. The lower estimates through 1969 resulted from the introduction of lower investment in structures by manufacturing industries for the years before 1947; the higher estimates after 1970 occurred because of the longer service lives. For nonfarm nonmanufacturing, the revised estimates are higher for all years, primarily due to the longer lives and also to the shift of pre-1947 structures investment flows from manufacturing to nonfarm nonmanufacturing; these factors more than offset the effect of the introduction into the revised estimates of transfers of privately owned transit systems and public utilities to government ownership.

By legal form of organization, the comparisons in table A show that, at the all-industry level, both the revised corporate and noncorporate estimates are higher than the corresponding previous estimates; however, the amount of the difference between the two sets of estimates varies considerably over the 1925-81 period. Several factors account for the variation. First, shifting some pre-1947 investment from manufacturing, which is dominated by the corporate form of organization, to nonfarm nonmanufacturing, which is less corporate, lowers corporate stocks and raises noncorporate stocks through the 1960's. Second, introducing shorter service lives for the farm industry, which is largely noncorporate, lowers noncorporate stocks, especially since 1960. Third, introducing longer service lives in the manufacturing and public utilities industries, which are largely corporate, raises corporate stocks for all years. Fourth, introducing new legal-form allocations increases the most industries, thus raising corporate stocks over time. Finally, introducing estimates of government purchases of privately owned transit systems and public utilities, which are largely corporate, lowers corporate stocks for the postwar period.

Derivation of Investment Flows

Overview

The perpetual inventory method used to derive the stock estimates starts with investment flows and obtains the gross capital stock for a given year by cumulating past investment and deducting the value of investment that has been discarded, based on average service lives and retirement patterns. The net capital stock is obtained by deducting the cumulative value of depreciation from the gross stock.

The investment flows used to implement the perpetual inventory method were developed in the flowing manner. First, flows were derived for investment in new capital by type of asset for each industry and for transfers of used assets between private business and other types of owners. Next, the flows for each industry for investment in new and used assets were distributed by legal form of organization. Finally, the investment flows by type of asset, industry, and legal form of organization were deflated to constant (1972) dollars.

The investment flows of asset types by industry were developed especially for this study, because they had to meet several requirements not all met by data available from other sources: the all-industry totals for each type of asset had to equal the NIPA flows for that type of asset, and the industries had to be defined on an establishment and ownership basis. The level of asset detail that was developed permitted the use of new detail on service lives in deriving the stock estimates and the use of more detailed price indexes in deriving the constant-dollar stock.

Series on investment estimates by industries are available from three major sources. The first series, from BEA's plant and equipment expenditures survey, provide annual data on investment in nonresidential capital by nonfarm industries, but these data are classified on a company basis, are not consistent with the NIPA investment totals (mostly due to industry coverage), and provide only a two-way split by type of asset--total equipment and total structures. The second series, collected by the Census Bureau for the industries covered by the economic censuses (mining, construction, manufacturing, wholesale trade, retail trade, and selected services), provide data on investment, but these data are available only quinquennially and also provide only a two-way split into total equipment and total structures (as does the Census Bureau's annual survey of manufactures). The third series, capital flow tables prepared by BEA as part of the input-output (I-O) tables, provide distributions of investment by type of asset for each I-O industry, but the data are available only for 1963, 1967, and 1972; are on a use basis rather than an ownership basis; and are classified by I-O industry rather than by NIPA industry.

The investment flows for nonresidential capital were derived in several steps in this study. First, annual investment control series for total equipment and for total structures were derived from each industry from the sources given in table B. Second, the flows for investment by type of asset were derived by modifying the NIPA series on fixed investment. Because the all-industry totals for equipment and those for structures did not equal the corresponding NIPA totals, they were adjusted to equal them. The adjustment process was based on BEA's assessment of the relative quality of the various sources of industry investment data and on indications from the capital flow distributions that the investment totals for certain industries for certain years were not consistent with the NIPA totals for these years for the types of assets owned by those industries.

Finally, modified capital flow tables for 1963, 1967, and 1972 were used to derive the investment data by type of asset for each industry. The distributions from these tables were modified from a use to an ownership basis and from an I-O to a NIPA industry classification. For the year between 1963 and 1972 (except 1967), interpolations between the capital flow tables were used to distribute the NIPA flows by type of asset. For other years, the nearest capital flow table was used to distribute the NIPA Flows by type of asset. In this step, an iterative procedure was used to derive the individual industry investment flows by type of asset so that (1) the asset flows at the all-industry level equaled those of the NIPA's, and (2) the industry investment totals for equipment and structures were as close as possible to those derived from the independent industry sources.

New nonresidential investment

this section describes the derivation of the investment flows for the detailed industry stock estimates beginning in 1947. In order to derive these stock estimates, it was necessary to derive control totals for investment flows in new nonresidential capital by industry beginning in 1921 for equipment and in 1900 for structures. Also, to derive stock estimates by major industry group for 1925-46, it was necessary to derive investment control totals for farms, manufacturing, and nonfarm nonmanufacturing going back into the nineteenth century, as in previous BEA studies. The data sources used to derive both of these sets of investment flows are given in table B.

Investment controls by industry.--The industry investment control totals were derived from several sources--some provided information for selected benchmark years and others for post-1947 interpolations between and extrapolations from the benchmark estimates. Because many of these sources began in 1947, other sources were used to extrapolate the control tools prior to 1947.

The source data for each industry were adjusted so that the control totals conformed to the concepts desired. The adjustments related to industrial classification, establishment basis, central administrative offices and auxiliaries, ownership basis, and employee-owned autos.

1. Industrial classifications. Establishment-based source data not on the basis of the 1972 Standard Industrial Classification were converted to this basis.

2. Establishment basis. Where necessary, the plant and equipment expenditures survey (P&E) and Statistics of Income series were adjusted from a company basis to an establishment basis.

3. Central administrative offices and auxiliaries. For the mining, construction, and manufacturing industries, the capital expenditures data from the economic censuses were adjusted to include capital expenditures by central administrative offices and auxiliaries, using data from the Census Bureau's Enterprise Statistics.

4. Ownership basis. To derive industry stocks by establishment industry on an ownership basis rather than a use basis, several conventions were adopted. First, assets owned by one industry were classified in the stock of the establishment industry owning the assets. Second, for assets used in establishments of multi-industry companies where the legal owner of the assets was the parent company, the assets were classified in the industry of the establishment where they were used. Third, assets owned by manufacturers' sales branches and offices were classified in the wholesale trade industry. Finally, assets owned and used by nonprofit institutions serving individuals were classified in the real estate industry; this convention was adopted to maintain consistency with the NIPA classification of these assets.

5. Employee-owned autos. The basic source data for each industry did not include expenditures from autos owned by individuals and used wholly or partly for business purposes; therefore, the expenditures attributable to business use were calculated and included, as discussed later in the section on autos.

After the industry investment controls for equipment and structures were estimated, they were adjusted judgmentally so that the all-industry totals for equipment and for structures were equal to the equipment and structures totals of the NIPA's. In this process, BEA assumed that the data from the economic censuses were the most accurate. Therefore, controls for census-covered industries were adjusted only if they differed significantly from the totals implied by the NIPA estimates for asset types owned by these industries. The remaining differences were allocated to the remaining industries so that the individual industry totals for a particular year were consistent with the NIPA totals for the types of assets owned by these industries.

Investment controls by type of asset.--For the years beginning with 1929, the flows for investment in new nonresidential capital by type of asset were derived from the NIPA series on the nonresidential fixed investment component of gross private domestic investment. For the years before 1929, the NIPA flows were extrapolated back into the nineteenth century based on data from various public and private sources.

The investment series for electric light and power structures was modified to produce stock and depreciation estimates consistent with the availability to income and output and with the timing of tax depreciation. The flows were modified from a "value-put-in-place" basis--i.e., the value of new construction put in place in a particular year, both on plants completed or under construction in that year--to a "when-completed" basis--i.e., the value of plant actually completed and put into service during the year. Flows for other types of structures were not modified, because the the value of the uncompleted plant has been both small and stable relative to the value of completed plant. For electric light and power structures, however, the value of uncompleted plant has been large and has been rising sharply relative to the value of completed plant over the past two decades.

Distribution by type of asset and industry.--The NIPA flows for investment in new nonresidential capital by type of asset were distributed by industry using data from BEA's capital flow tables for 1963, 1967, and 1974. However, before the capital flow tables were used, they were modified because they provided the distribution of assets on an I-O industry classification basis and on a use basis. First, investment by nonprofit institutions serving individuals was reclassified from the services industries to the real estate industry, and force-account construction was reclassified from the construction industry to the industry performing the construction. Second, the distributions were converted from a use to an ownership basis, using unpublished data from the I-O studies. The two modifications yielded the detailed type of asset by industry distributions for equipment and structures for 1963, 1967, and 1972.

For years not covered by capital flow tables, the NIPA investment flows by type of asset were distributed by industry as follows. As a first approximation, each type of asset was distributed by industry based on modified capital flow distributions: For 1962 and all prior years, the 1963 table; for 1964-66, interpolations between the 1963 and 1967 tables; for 1968-71, interpolations between the 1967 and 1972 tables; for 1973 and all subsequent years, the 1972 table. Second, the asset types allocated to each industry were summed to totals for equipment and for structures within the industry; these totals were then adjusted to equal those for the industry controls. Third, the industry estimates by type of asset, from the previous step, were summed by type of asset and then adjusted to equal the NIPA totals for each asset type. Finally, these last two steps were repeated until the asset investment totals equaled the NIPA asset totals and the industry investment totals for equipment and for structures were as close as possible to the industry control totals derived from independent sources.

New residential investment

For the years since 1929, the flows for investment in new residential capital by industry were derived from the NIPA series on the residential fixed investment component of gross private domestic investment. For the years before 1929, the flows were based on data from various public and private sources.

In the distribution of residential investment flows by industry, investment in farm and nonfarm structures was allocated between owner occupied and tenant occupied; other nonfarm residential structures (dormitories, fraternity and sorority houses, nurses homes, etc.) were grouped separately. Investment in farm residential structures was allocated between owner occupied and tenant occupied separately for 1-to-4-unit structures and mobile homes using Department of Agriculture data. All owner-occupied farm residential structures were included in the farm industry; tenant-occupied farm residential structures were distributed between those owned by farm operators, included in the farm industry, and those owned by nonfarm landlords, included in the real estate industry.

Investment in nonfarm residential structures was allocated between owner occupied and tenant occupied separately for 1-to-4-unit structures, 5-or-more-unit structures, and mobile homes using information from the following Census Bureau reports: Census of Housing (decennial), Annual Housing Survey (annual), Characteristics of New Housing (annual), Residential Alterations and Repairs (quarterly), and Housing Vacancies (quarterly). All nonfarm residential structures were included in the real estate industry, as was all residential equipment, which is defined to be nonfarm tenant occupied.

Transfers of used assets

Next, the value of transfers of used assets was added to the flows of new investment by industry. Data were only available to adjust for transfers among different types of owners (private business, governments, households, and foreigners). These data were based, for the most part, on modified NIPA flows for net purchases of used assets. Data were not available to adjust for transfers among industries or among legal forms of organization.

Nonresidential investment.--The largest transfers of used nonresidential capital assets between private business and other types of owners involve sales of used autos by private business to households, exports of used equipment, purchases of government surplus assets, and government purchases of privately owned public utilities. For autos, annual data were available on stocks and unit values of autos by type of owner; therefore, it was not necessary to make explicit adjustments for net transfers of autos among types of owners.

In the NIPA's, exports of used equipment and purchases of government surplus assets by private business are valued at secondhand sales prices. For the industry stock estimates, however, these exports and most of the government surplus assets were valued at estimated original acquisition prices, so that the transferred assets were valued consistently with those remaining in the stock of the original owner. Government surplus assets that were built during wartime with special characteristics that added to their cost but that were of no use to their new owners in peacetime were valued at estimates of the prices that private business would have paid for new assets of equal productivity designed for the uses to which the surplus assets would be put. After the estimates of exports of used equipment and purchases of government surplus assets were revalued, they were distributed, in the years of transfer, by type of asset, to the industries involved, using data from the Census Bureau's foreign trade statistics and surplus property reports from the General Services Administration and the Department of Defense.

The NIPA flows of gross private fixed domestic investment and government purchases of goods and services do not presently include purchases by State and local governments of privately owned railroads, transit systems, electric utilities, and water systems. Therefore, annual estimates of the value of assets purchased by government were derived for each type of public utilities, separately for equipment and structures, and removed from the stock of the selling industry in the year of purchase. The estimates were based on data from the following sources: for railroads, Moody's Transportation Manuals; local transit, Moody's Transportation Manuals and the American Public Transit Association; electric utilities, Moody's Public Utility Manuals and Department of Energy publications, Statistics of Privately Owned Electric Utilities in the United States and Statistics of Publicly Owned Electric Utilities in the United States; and water systems, Moody's Public Utility Manuals. Estimates for these purchases will be incorporated into the NIPA's in the comprehensive revision scheduled for publication at the end of 1985, with offsetting adjustments in government purchases and private fixed investment.

Residential investment.--The largest transfers of used residential capital among private business and other types of owners, and among industries, involve purchases of private housing by State and local governments, conversions of Federal military housing to private ownership, and transfers of farm housing to nonfarm ownership. The estimates of transfers among private business and governments were derived from the NIPA flows; the estimates of conversions of farm housing were derived from data from the censuses of housing.

Net transfers of existing residential structures between government and private business consist primarily of State and local government purchases of private housing to make way for new roads or buildings. In the NIPA's, these transfers are offsetting in government purchases and private fixed investment and are valued at sales prices. In the stock estimates, however, these transferred structures were treated as permanent losses from the housing stock rather than as shifts from the private to the public stock; the housing involved in these purchases was removed from the stock of the real estate industry in the year of government acquisition. World War II Federal military housing covered to private ownership after the war was transferred to the stock of the real estate industry in the year of conversion.

An important type of transfer that enters the industry stock estimates, but not the NIPA estimates of investment, is the post-World War II shift of farm housing in urban fringe areas to nonfarm housing. Estimates of the value of these transfers were derived from the censuses of housing and moved from the farm industry to the real estate industry in the year of transfer.

Investment by legal of form of organization

The estimates of investment in new and used assets for each industry were distributed by legal form of organization--corporate, sole proprietorships and partnerships, and other private housing business. These investment flows were then used to derive stock estimates by legal form for each industry. This procedure did not take account of shifts of existing assets from one legal form to another (for example, when an unincorporated enterprise incorporated). The information necessary to account for these shifts was not available.

Nonresidential investment.--Investment in nonresidential capital was distributed annually by legal form of organization within industries by subtracting estimates of investment by other private business and then distributing the remainder between corporations, on the one hand, and sole proprietorships and partnerships, on the other.

For other private business, investment by tax-exempt cooperatives was estimated from Department of Agriculture data, separately for the telephone and telegraph, electric services, and wholesale trade industries; investment by entities required to report rental income on nonresidential property in IRS Schedule E was derived from IRS data on investment and depreciation; and investment by nonprofit institutions serving individuals was derived from Census Bureau data on the value of new construction put in place and from trade association data.

For industries covered by the agriculture and economic censuses (farm, mining, construction, manufacturing, wholesale trade, retail trade, and selected services), the legal-form percentages for corporations and for sole proprietorships and partnerships for the census years were based on distributions of capital expenditures from the censuses; for noncensus years, the percentages were based on distributions of expenditures interpolated by IRS depreciation data. For other industries, the percentages for all years were based on the distributions of IRS depreciation data by legal form.

Residential investment.--For the farm industry, investment in residential capital was distributed by legal form of organization using data from the census of agriculture. For the real estate industry, all investment in owner-occupied residential capital was assigned to other private business; investment in tenant-occupied residential capital was distributed by legal form using data from the Census Bureau's survey of residential finance; and investment in other nonfarm residential structures (dormitories, fraternity and sorority, houses, nurses' homes, etc.) was assigned to other private business.

Derivation of Stock Estimates

Service lives

The service lives used in the perpetual inventorty method to derive the revised stock estimates are shown in table C, together with those used in previous BEA estimates. For equipment, the new lives were generally based on industry studies conducted by the Treasury Department during the 1970's. For nonresidential structures, the lives were based on tax service lives in the 1942 edition of Bulletin "F" of the Treasury Department, book value data compiled by regulatory agencies, and Department of Agriculture data. For residential structures, the lives were based on those in a study by Raymond W. Goldsmith and Robert E. Lipsey, except for mobile homes, where the average service life was based on trade association data.

Separate service lives were used for each type of asset in the perpetual inventory calculation--the same asset detail for which annual investment series are stimated in the NIPA's. Where possible, separate lives were used for each industry in which a particular type of asset is purchased, to align service lives more closely with actual experience; however, because of data limitations, industry-specific service lives could be computed only for some types of assets, as indicated in table C.

Each service life by type of asset and industry was held constant over time. Although service lives could vary over time due to business conditions and technological change, the information necessary to estimate such changes in service lives was not available. The book value comparisons given later in this article suggest that the use of constant service lives has not produced any systematic bias in the BEA estimates for the 1959-81 period.

Equipment.--The revised stock estimates for nonresidential and residential equipment were based on service lives obtained from industry studies conducted during the 1970's by the former Office of Industrial Economics (OIE) of the Treasury Department. The OIE results were particularly useful for manufacturing industries, because they provided separate industry estimates of service lives for production-type equipment--metalworking machinery; special industry machinery, n.e.c.; and general industrial, including materials handling, equipment. The previous BEA stock estimates were based on service lives that were derived by modifying Bulletin F lives. The lives used in the revised BEA estimates represent an improvement over those used in the previous estimates, particularly in that they provide detail for spearate industries.

Nonresidential structures.--For farm structures, the average service life used in both the revised and previous estimates was based on Department of Agriculture data. For telephone and telegraph, electric light and power, gas, and petroleum pipelines structures, the service lives used in the revised estimates were derived by comparing book vlaue data provided by regulatory agencies with perpetual inventory estimates calculated using various alternative service lives. For other types of nonfarm structures, the lives used in the revised estimates were derived by modifying Bulletin F lives, as follows. Because the NIPA investment flows for nonresidential structures include additions and alterations to existing structures as well as new structures, the Bulletin F lives, which apply only to new structures, were shortened 20 percent for manufacturing structures and 7 percent for nonfarm nonmanufacturing structures. Next, the lives were shortened another 15 percent to account for the fact that actual service lives for nonresidential structures were probably shorter than Bulletin F lives. In the previous estimates, the lives for all types of nonfarm structures were derived by modifying Bulletin F lives, as described above.

Retirement patterns

Except for autos, the service lives in table C are averages; therefore, to account for the retirement of assets at different ages, patterns were calculated based on modifications of the Winfrey S-3 curve, a bell-shaped distribution centered on the average life. For nonresidential capital and residential equipment, retirements start at 45 percent and end at 155 percent of the average life. For residential structures, retirements start at 5 percent and end at 195 percent of the average life (table D). The retirement patterns used in both the revised and the previous estimates were the same.

Obsolescence

The service lives used to derive the revised and previous estimates were designed to take account of expected average obsolescence over time, and the retirement paterns were designed to take into account normal deviations around the average life. However, the paterns do not take account of "unexpected" obsolescence--that is, obsolescence due to unforeseen events that may have substantially altered the time pattern of the loss of the asset's productive services. Some analysts have argued, for example, that government pollution abatement and safety regulations, sudden increases in energy prices, and increased foreign competition since the early 1970's have rendered certain capital assets obsolete before the end of their normal service lives. In situations where such unexpected obsolescence did occur and assets were retired before the end of their normal service lives, it would be desirable to reflect these earlier-than-normal retirements in the stock estimates.

In BEA stock estimates, adjustments were not made for such unexpected obsolescence because the necessary data were not available. In the case of assets rendered obsolete by government pollution abatement and safety regulations and by increased energy costs, it is possible that many of these assets would already have been near the end of their normal lives when they were retired, and that any adjustments to remove them from the stock estimates would be small. In the case of plant closings due to foreign competition, it is possible that these plants may reopen in the future, although not necessarily producing the same products. Because these plants still represent productive capital, they should continue to be included in the stock estimates until they are demolished or until it is certain that they will never reopen in any capacity.

Valuation and price indexes

The stock estimates are valued in three different ways--at historical cost, at constant cost, and at current cost. In historical-cost valuation, each asset in the gross stock is valued at its original acquisition price. Constant-cost estimates--referred to in tables 3, 4, 7, and 8 as constant-dollar estimates--value each asset at the prices of 1972, the prices used for constant-dollar GNP. Thus, the constant-cost stock for a particular industry is an estimate of the quantity of fixed capital owned by that industry valued in 1972 prices. The constant-dollar investment flows used to derive these estimates were obtained by dividing the current-dollar industry investment flows by price indexes, separately for each type of asset.

Current-cost estimates--referred to in tables 1, 2, 5, and 6 as current-dollar estimates--value each asset at any specific period at the prices of that period. For example, the yearend 1947 stock estimate shows the items that were in the stock at yearend 1947 expressed at the prices that would have been paid for them at yearend 1947 if they had been produced at yearend 1947. Current-cost stock estimates were calculated by applying price indexes to the constant-cost stock estimates.

The price indexes used to derive the estimates of constant-cost and current-cost stocks were the same as those used to derive constant-dollar fixed investment in the NIPA's. Price indexes for structures were based on various construction price and cost indexes, and those for equipment were based on Producer Price Indexes published by the Bureau of Labor Statistics (BLS).

Autos

Numbers and ages of autos in use were available each year from State registration data tabulated by R. L. Polk and Company. The procedure for deriving estimates of the stocks of autos owned by private business took advantage of the availability of this information. As a result, it was not necessary to assume an estimated service life or retirement pattern for autos or to make explicit adjustments for sales of used autos from one type of owner to another.

The first step in deriving estimates of stocks of autos by industry involved the calculation of the total stock of autos in use, regardless of ownership. This stock was calculated as follows: (a) The number of new autos entering the stock each year was estimated from trade association data; (b) survival rates were obtained from annual Polk tabulations for each year of original registration; and (c) these survival rates were applied to the new autos series to derive annual estimates of the total stock of autos in use by year of original registration.

Second, the total stock of autos was separated into stocks of consumer and business autos, based on Polk tabulations of registrations by businesses and by individuals and on BLS and Census Bureau data on autos owned by individuals but used wholly or partly for business purposes. Autos owned by businesses were assigned to the business stock, and autos owned by individuals that were used exclusively for personal purposes were assigned to the consumer stock. Autos owned by individuals that were used wholly or partly for business purposes were allocated between consumer and business usage of these autos; the portion of these autos allocated to business stocks provided the estimates of employee-owned autos discussed in "Investment controls by industry."

Third, the average unit value for business autos in each year of original registration was derived from BLS data and then deflated by the implicit price deflator for the new autos component of producers' durable equipment to obtain the average unit value in 1972 prices. The annual constant-cost gross stock of business autos was obtained by multiplying the number of business autos in each year of original registration by the corresponding deflated business unit value.

Finally, total business stocks of autos were distributed by industry using data from BEA's capital flow tables adjusted to the NIPA industry classification and to an ownership basis.

Depreciation and net stock

Assets are carried in the gross stock at their undepreciated values during the entire time they remain in the stock. The net stock estimates were derived by subtracting accumulated depreciation estimates from these values. The depreciation estimates were derived using the straight-line formula, which assumes equal dollar depreciation each year over the life of the asset.

Capital consumption allowances in the NIPA's.--The estimates of capital consumption--capital consumption allowances with capital consumption adjustment (CCA with CCAdj)--now used in the NIPA's are equal to the current-cost depreciation estimates associated with BEA's previous capital stock estimates plus accidental damage to fixed capital. The estimates of depreciation associated with the revised and updated stock estimates to be published in 1986 will provide the depreciation estimates at the all-industry level for the CCA with CCAdj for the comprehensive revision of the NIPA's scheduled for publication at the end of 1985. The revised industry estimates cannot be used to derive industry estimates of CCAdj, the difference between capital consumption estimates based on tax returns and those based on the current-cost depreciation estimates from the stock calculations, because the tax-return-based NIPA estimates of CCA are on a company basis and the depreciation estimates associated with the revised stock estiamtes are on an establishment basis. Research to develop company-based estimates of CCA with CCAdj by industry is planned.

Comparisons with IRS and

Census Book Value Estimates

To provide checks on the validity of the combination of the investment flows, service lives, retirment patterns, and legal-form allocations used to derive the revised BEA estimates, comparisons were made between the revised estimates of gross stocks in historical-cost valuation and two sets of independently derived estimates--one based on IRS book value estimates and the other on similar data from the Census Bureau.

Comparisons with IRS estimates at

the all-industry level

Table E shows ratios of the revised BEA estimates of gross stocks of fixed private capital in historical-cost valuation to IRS estimates of gross book value of depreciable assets, separately for corporations and for sole proprietorships and partnerships. (The comparisons are for years for which IRS estimates were available.)

Before the ratios were calculated, the estimates were adjusted to remove conceptual differences. The IRS estimates were adjusted to remove depreciable assets of unincorporated foreign branches, construction work in progress, and allowance for funds used during construction of public utilities, and to add assets that financial industries own and lease to other industries and autos owned by individuals and used wholly or partly for business purposes.

The BEA estimates were adjusted to reflect the IRS valuation method and ownership classification for assets sold secondhand using IRS data on capital gains and the NIPA price indexes for the assets involved. In the IRS estimates, assets sold secondhand were valued at their cost to the present owner and were included in the stock of the present owner. In the BEA estimates, such assets were valued at their cost to the original owner and were included in the stock of the original owner. Because the data used to adjust the BEA estimates related only to sellers, the adjustment could only be made at the all-industry level, separately for corporations and for sole proprietorships and partnerships, and was not possible for instances where an entity changed its legal form of organization without selling its assets (for example, when an unincorporated enterprise incorporated). The inability to make the adjustment in instances where an entity changed its legal form affects the comparisons in table E for corporations and those for sole proprietorships and partnerships but not those for the total of these two legal forms.

As shown in table E, the ratios of BEA to IRS estimates at the all-industry level are very close to 1.00 over the 1959-78 period. This may be viewed as evidence consistent with the validity of the combination of the investment flows, service lives, and retirement patterns used to derive the BEA estimates. For corporations, the ratios in table E are less than 1.00 (i.e., the BEA estimates are smaller than the IRS estimates) for all years shown except 1979, although they are very close to 1.00 beginning in 1971. For sole proprietorships and partnerships, the ratios are greater than 1.00 for all years shown, although they are considerably closer to 1.00 beginning in 1975. This may be viewed as evidence that, over this period, the BEA estimates for corporations are apparently biased downward somewhat, and those for sole proprietorships and partnerships are apparently biased upward somewhat. Two possible sources of this apparent bias in the BEA estimates by legal form of organization are: (1) the legal-form allocations used to derive the BEA estimates were based on less information prior to the 1960's than those starting in the 1960's; and (2) the BEA estimates do not take account of entities changing from one legal form to another. Most of these legal form changes through the early 1970's were from sole proprietorships and partnerships to corporations. Starting in the 1970's, this bias appears to be decreasing, but its future direction and ssize are difficult to predict.

Comparisons with census book value

estimates by industry

Table F shows the revised BEA estimates compared with adjusted estimates of gross book values of depreciable assets for industries included in the economic censuses in 1977. The census estimates were adjusted to make them conceptually comparable with the BEA estimates; the adjustments are similar to those described in "Investment controls by industry."

For the total of all census-covered industries, the BEA and census estimates are within 1 percent of each other. On an individual industry basis, the two sets of estimates are within 5 percent of each other for 14 of the 34 industries; for the other 20, the BEA estimate is lower than the census estimate for 13 industries and higher for 7 industries.

One major reason for the differences between the two sets of estimates for some industries is the treatment of capital leases. These leased assets are included in the industry of the lessor in the BEA estimates and in the industry of the lessee in the census estimates. The impact of this difference is especially apparent in two of the census-covered industries with substantial leasing activity--business services and auto repair, services, and garages.

Given the approximate nature of the adjustments to the census estimates and thecapital leasing problem, the closeness of the BEA and Census Bureau estimates at the level of all census-covered industries and for most individual industries may be viewed as evidence consistent with the validity of the combination of the investment flows, service lives, and retirement patterns used to derive the BEA estimates for the census industries.

Comparisons with IRS corporate book

value estimates by industry

Table G shows the revised BEA estimates compared with IRS estimates on corporate gross book value of depreciable assets. A similar comparison for sole propretorships and partnerships was not possible, because IRS did not tabulate estimates of gross book value of depreciable assets for these entities for 1977.

The estimates for this table were adjusted in the same way as those for table E, except in two cases. First, the BEA estimates by industry were not adjusted for valuation of assets sold secondhand, because the necessary date were not available. Thus, the all-industry ratio in table G differs from that for corporations in table E, and a number of the industry comparisons in table G are affected by the inability to adjust for this difference in valuation methods. Second, IRS estimates for many industries could not be fully adjusted from the company basis to the establishment basis required for comparison with the BEA estimates. The partial company-establishment adjustment affected industries as follows: (1) Assets of integrated petroleum companies were reclassified primarily from the manufacturing of petroleum and coal products industry to mining, chemical manufacturing, transportation, retail trade, and certain other industries; (2) assets on which depletion allowances were claimed on tax returns were reclassified from the industry claiming the depletion allowance to the mining and forestry industries; (3) assets in manufacturers' sales branches were reclassified from manufacturing industries to the wholesale trade industry.

As shown in the addenda to table G, the BEA and IRS estimates for the total of all industries not covered by the 1977 economic censuses are within 3 percent of each other. This closeness of fit, together with that shown in table F between the BEA and census estimates for the total of all census-covered industries, provides further evidence consistent with the validity of the combination of the investment flows, service lives, and retirement patterns used to derive the BEA estimates. The ratios in table G by industry show considerable variation, largely due to the valuation and company-establishment classification problems discussed above.
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Title Annotation:with related article on methodology
Author:Gorman, John A.; Musgrave, John C.; Silverstein, Gerald; Comins, Kathy A.
Publication:Survey of Current Business
Date:Jul 1, 1985
Words:7375
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