Trade Data as Input to U'S' GDP Calculations

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Trade Data as Input to U.S. GDP Calculations

• Dave Wasshausen
• Economist, National Income and Wealth Division,
  BEA

ITDU International Trade Data Conference May 4,
2004, Washington D.C.
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What are the NIPAs?

• The National Income and Product Accounts (NIPAs)
  are a set of economic accounts that track
  economic flows within the U.S. economy. The key
  NIPA measures are
• Gross domestic product (GDP) Measures the total
  value of goods and services produced within the
  U.S.
• Gross domestic income (GDI) Measures the
  incomes earned and costs incurred in that
  production

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NIPA seven-account summary

• Domestic Income and Product Account
• Private Enterprise Income Account
• Personal Income and Outlay Account
• Government Receipts and Expenditures Account
• Foreign Transactions Current Account
• Domestic Capital Account
• Foreign Transactions Capital Account

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Foreign Transactions in NIPAs

• Foreign transactions is the fifth account in a
  seven account system of integrated accounts (i.e.
  NIPAs) that provides a comprehensive measure of
  the nations economic activity
• Account records transactions of foreign residents
  with U.S. residents and is essentially a
  condensed version of BEAs International
  Transactions Accounts (ITAs)

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Foreign Transactions in NIPAs -- Cont.

• Includes transactions for the following
• Goods
• Services
• Income on assets
• Wages
• Transfers

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Foreign Transactions in NIPAs -- Cont.

• ITAs provide the basis for NIPA foreign
  transactions
• Conceptual and statistical differences exist and
  are reconciled in NIPA table 4.3B

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Foreign Trade in GDP Flow of Estimates

• Goods exports/imports processed by Census
  Foreign Trade Division (FTD)
• Services exports/imports processed by BEAs
  Balance of Payments Division (ITAs)
• BEAs BPD adjusts Census goods estimates to
  conform to ITA conventions
• BEA's National Income and Wealth Division (NIWD)
  adjusts ITA estimates to conform to NIPA basis
• NIWD develops estimates of real exports and real
  imports by adjusting for price change

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Notable Reconciliation Items

• Territorial adjustment ITAs include U.S.
  territories, Puerto Rico, and the Northern
  Mariana Islands as part of the U.S. The NIPAs
  define these as part of the rest of the world
• Services furnished without payment by financial
  intermediaries except life insurance carriers
  included in NIPAs
• Borrower services
• Depositor services

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Foreign Trade in GDP

• Traditional expenditure (or product-side)
  approach identity for measuring gross domestic
  product (GDP)
• GDP C I G X - M
• Where
• C Personal consumption expenditures
• I Gross private domestic investment
• G Government consumption expenditures and
  gross investment
• X Exports
• M Imports

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Expenditure components of GDP (2003)
Billions of dollars
Consumption
GDP C I G X - M
Government
Investment
Imports
Exports
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Foreign Trade in GDP--Cont.

• GDP measures the market value of the goods and
  services produced by labor and property located
  in the U.S.
• C, I, and G reflect purchases of goods and
  services regardless of where they are produced
• Subtracting imports (M) is necessary to reduce
  total expenditures (C, I, G, and X) to domestic
  output

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Foreign Trade in GDP--Cont.

• Consider the following examples that illustrate
  how imports are reflected in expenditure
  categories
• Retail sales, which are the basis for personal
  consumption expenditures (C) for goods, include
  goods that are produced outside the U.S.
• Estimates for private fixed investment (I) in
  equipment and software are prepared using the
  commodity-flow technique, whereby we explicitly
  add imports to domestic shipments

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Foreign Trade in GDP--Cont.

• A special adjustment is made in PCE for net
  foreign travel. For example, a European
  visiting the U.S. purchases jewelry. The
  transaction is recorded in three places
• Exports of travel increases
• PCE net foreign travel decreases
• PCE jewelry sales increases
• GDP increases by the value of the jewelry and PCE
  is unaffected

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Foreign Trade in GDP--Cont.

• Similarly, a U.S. resident visiting Europe
  purchases jewelry
• Imports increases
• PCE net foreign travel increases
• GDP is unchanged

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Example

• Assume the trade deficit widens. What does that
  mean for GDP?
• Exports are unchanged and imports of software
• Private fixed investment in software
• Imports (which are a subtraction)
• GDP is unaffected!

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GDP vs GNP

• Gross national product (GNP) is the market value
  of goods and services produced by labor and
  property supplied by U.S. residents
• GDP Income Receipts - Income Payments
• The difference between gross domestic product and
  gross national product is net receipts of income
  from the rest of the world

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Real Foreign Trade in GDP

• Real (adjusted for price change) exports and
  imports (Q) primarily reflect nominal estimates
  (E) that have been deflated with a price index
  (P)
• Q E P
• Price indexes used to deflate trade in goods are
  primarily derived from Bureau of Labor Statistic
  (BLS) export/import price indexes

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Real Foreign Trade in GDP--Cont.

• Price indexes used to deflate trade in services
  are derived from a variety sources, including
• BLS export/import price indexes
• BLS producer price indexes
• BLS consumer price indexes
• Foreign country consumer price indexes
• NIPA (aggregate) implicit price deflators
• BEA defense price indexes

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Real Foreign Trade in GDP--Cont.

• Some import price indexes are explicitly adjusted
  for exchange rates, including travel and direct
  defense expenditures

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Importance of Foreign Trade in GDP

• Estimates are large and growing!
• In 2003
• NIPA current-dollar exports grew 4.2 to over 1
  trillion (real exports grew 2.0)
• NIPA current-dollar imports grew 7.7 to over
  1.5 trillion dollars (real imports grew 4.0)

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GDP and Outsourcing

• Import component most relevant to outsourcing is
  the business, professional, and technical
  services category, which rose 16 percent
  (current-dollars) in 2003
• No evidence of a systematic bias in the estimates
  of net exports in GDP.

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Comparing BEAs Estimates to Other Estimates

• Use caution when comparing BEA estimates to data
  produced by trade associations or by foreign
  governments
• May not be consistent with international
  statistical standards
• Concept of resident may differ

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Imports of Services Additional Perspectives

• Real imports of services have been rather flat
  since 2000, which largely reflects declines in
  travel and passenger fares
• The NIPA price index for imports of services
  increased 7.4 percent in 2003 reflecting
  increases in the price indexes for travel
  (11.6), other transportation (12.9) and direct
  defense expenditures (17.9)

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For More Information

• Prepared a set of Q As that was posted on the
  BEA website
• Additional related information can be found in A
  Note on Patterns of Production and Employment by
  U.S. Multinational Companies, published in the
  March Survey of Current Business