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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. What are the NIPA’s?.

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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 NIPA’s?

  • 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

www.bea.gov


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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

www.bea.gov


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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 nation’s economic activity

  • Account records transactions of foreign residents with U.S. residents and is essentially a condensed version of BEA’s International Transactions Accounts (ITAs)

www.bea.gov


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Foreign Transactions in NIPAs -- Cont.

  • Includes transactions for the following:

    • Goods

    • Services

    • Income on assets

    • Wages

    • Transfers

www.bea.gov


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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

www.bea.gov


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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 BEA’s Balance of Payments Division (ITAs)

  • BEA’s 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

www.bea.gov


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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

www.bea.gov


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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

www.bea.gov


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Expenditure components of GDP (2003)

[Billions of dollars]

Consumption

GDP = C + I + G + X - M

Government

Investment

Imports

Exports

www.bea.gov


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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

www.bea.gov


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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

www.bea.gov


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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

www.bea.gov


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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

www.bea.gov


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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!

www.bea.gov


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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

www.bea.gov


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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

www.bea.gov


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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

www.bea.gov


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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

www.bea.gov


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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%)

www.bea.gov


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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.

www.bea.gov


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Comparing BEA’s 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

www.bea.gov


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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%)

www.bea.gov


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For More Information

  • Prepared a set of Q & A’s 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

www.bea.gov


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