# Presentation: 673874

## NIPA – Flow of Funds Accounts Integration	

*BEA Government Statistics Users Conference*

**Charlotte Anne Bond**
*Special Studies Branch*
- September 14, 2006

## Introduction

- International standards call for these integrated accounts
- In the U.S., the Bureau of Economic Analysis (BEA) produces income and capital accounts: National Income and Product Accounts (NIPAs)
- The Federal Reserve Board (FRB) produces financial accounts: Flow of Funds Accounts (FFAs)
- BEA and FRB are currently working to integrate the accounts to create a balance sheet that meets international guidelines

**Notes:**
The National Income and Product Accounts (NIPAs) are produced by BEA and the Flow of Funds Accounts (FFAs) are produced by the Federal Reserve Board (FRB).  

This project is an effort by BEA and FRB to integrate the accounts, such as a balance sheet, to more closely meet international guidelines.

## Background

- The NIPAs show nonfinancial accounts and the FFAs feature financial accounts; together they provide a comprehensive picture of the government sector.
- While the concepts in both accounts are the same, differing data sources and estimation methods employed cause the results to differ

**Notes:**
The purpose of the NIPA – FFA integration project is to have a consistent presentation of information between BEA and FRB in estimates we both produce.  

The nonfinancial accounts, the NIPAs, produced by BEA and the financial accounts, the FFAs, produced by FRB can be combined to provide a comprehensive picture of the government sector.

Different data sources and estimation methods cause estimates representing the same concepts to have outcomes that differ.

## Usefulness of Integration(illustration)

**Notes:**
While not a government measure, here are a couple of charts that illustrate the usefulness of integration.

Here we have a comparison of personal savings in the NIPAs and personal savings in FFAs.  While they are not identical, it is apparent they track fairly closely.

Integration efforts could make these two measures even closer.

PCE = Personal Consumption Expenditures
DPI = Disposable Personal Income

## Thrust of this Project

- Improve the quality and usefulness
- Ensure consistent boundaries
- Identify more data sources
- Increase communication while preparing estimates

**Notes:**
Four objectives of this project are:
1)  Improve the quality and usefulness of the estimates 
2)  Ensure that sector boundaries are consistent across accounts
3)  Identify source data for sectors where information is not available
4)  Have BEA and FRB increase communication regarding data sources, methods for estimations and missing data

## Flow of Funds Tables

- Efforts to improve statistical consistency in the government accounts
- FFA Tables F.105 (State and Local Government) and F.106 (Federal Government)
- The focus of my example is on the Federal accounts; however, similar concerns exist for the State and Local accounts

**Notes:**
Given our division’s mission, I am going to focus on what is being done to improve statistical consistency in the government accounts.  

These accounts are recorded in FFA Tables F.105 (State and Local Government) and F.106 (Federal Government).  

Due to time constraints, I am going to focus on the Federal accounts with the understanding that similar issues exist in State and Local Government accounts AND it is part of the long term agenda to address similar issues in those accounts, as well.

## F.106 Federal Government Lines 1-21Billions of dollars

|   |   | 2003 |  2004   |  2005   |   |
| --- | --- | --- | --- | --- | --- |
|  1   | Current receipts, NIPA basis   | 1,868.6   | 1,974.8   | 2,221.9   | 1 |
|   |    . |  |  |  |  |
|  |    . |  |  |  |  |
|  10   | Current expenditures, NIPA basis   | 2,251.4   | 2,381.3   | 2,548.4   | 10 |
|  |    . |  |  |  |  |
|   |    . |    |  |  |  |
|  17   | Net federal government saving, NIPA basis   | -382.7   | -406.5   | -326.5   | 17 |
|  |    . |  |  |  |  |
|   |    . |    |  |  |  |
|  21   | = Gross saving and net capital transfers   | -332.2   | -350.7   | -273.0   | 21 |

- Federal Reserve Flow of Funds Accounts Z.1 Release June 8, 2006

**Notes:**
Here I have lines 1 through 21 of the Z.1 FFA F.106 Table

What I am showing are only the aggregates simply to indicate the measures and estimates included in this table.  

GO THROUGH LINE ITEMS

Basically these are NIPA estimates.  

## F.106 Federal Government Lines 22-52Billions of dollars

|   |   |  2003 |  2004   |  2005   |   |
| --- | --- | --- | --- | --- | --- |
| 22 | Gross investment |  -385.3   |  -358.8   | -270.1   | 22 |
|  |    .   |  |  |  |  |
|  |    .   |  |  |  |  |
| 25 | Net financial investment   | -478.1 | -460.8   | -377.7   | 25 |
| 26 | Net acq. of financial assets   | 22.9   | -30.1   | -16.1   | 26 |
|  |    .   |  |  |  |  |
|  |    .   |  |  |  |  |
| 38 | Net increase in liabilities   | 501.0   | 430.6   | 361.6   | 38 |
|  |    .   |  |  |  |  |
|  |    .   |  |  |  |  |
| 51 | Discrepancy   | 53.1   | 8.2   | -2.9   | 51 |
| 52 | Change in cash balance (5)   | -24.8   | -3.1   | 4.6   | 52 |

- Federal Reserve Flow of Funds Accounts Z.1 Release June 8, 2006

**Notes:**
Here I have lines 22 through 52.  Again, I am only showing the aggregates.

GO THROUGH LINE ITEMS

These are basically FRB created estimates of flows in financial assets and liabilities, again, for the Federal Government sector.

Line 51 (which I discuss on the next slide) is the difference between line 21 (Gross saving and net capital transfers) and line 22 (Gross investment).

Theoretically, these are measuring the same thing.

## Statistical Discrepancy

|   | Flow of Funds Accounts, Table F.106 |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|   | Billions of Dollars, Quarterly Statistics are at Annual Rates, Calendar Years and Seasonally Adjusted Quarters |  |  |  |  |  |  |
| Line |   | 2004 CY |   | 2004 Q1 | 2004 Q2 | 2004 Q3 | 2004 Q4 |
| 10 | Current Expenditures | 2,381.4 |   | 2,347.2 | 2,364.9 | 2,387.0 | 2,426.2 |
| 51 | Discrepancy | 8.2 |   | 128.5 | -24.1 | -68.2 | -6.4 |
|   | Discrepancy as Percent of Current Expenditures | 0.34% |   | 5.47% | -1.02% | -2.86% | -0.26% |
|   |   |   |   |   |   |   |   |
|   |   | 2005 CY |   | 2005 Q1 | 2005 Q2 | 2005 Q3 | 2005 Q4 |
| 10 | Current Expenditures | 2,548.4 |   | 2,494.9 | 2,525.2 | 2,563.7 | 2,610.0 |
| 51 | Discrepancy | -2.9 |   | 253.1 | -178.4 | -76.4 | -9.9 |
|   | Discrepancy as Percent of Current Expenditures | -0.11% |   | 10.14% | -7.06% | -2.98% | -0.38% |
|  | Data gathered from FFA Table F.106 December 8 2005 and June 8, 2006. |  |  |  |  |  |  |

**Notes:**
This table demonstrates one of the issues that we intend to address through this project.  The discrepancy listed is the difference between Table F.106 lines 21 and 22.

In international guideline terminology, these are closest to net lending and net borrowing.

However, the FFAs present them as Gross saving and net capital transfers in Line 21 and Gross investment in Line 22.  

As one can see the annual discrepancies are quite small.  For these two years they are 0.3 percent and -0.1 percent, respectively.  

The quarterly statistics, however, are not only larger, but can vary widely from one quarter to the next.  

The smallest discrepancy shown is in 2004 quarter 4 at -0.3 percent and the largest is in 2005 quarter 1 at 10.1 percent.  

As for large quarter to quarter fluctuations, from 2005 quarter 1 to 2005 quarter 2 the discrepancy changes from a positive 10.1 percent to a negative 7.1 percent which is a total swing of more than 17 percentage points.

## What has been Accomplished

- Teplin et al., “Integrated Macroeconomic Accounts for the United States: Draft SNA-USA”(2005) documents the past efforts in this project and lays out the future direction
- Estimates are prepared for the draft SNA-USA structure for the period 1985 – 2002
- Prospects are clear for improving the integration of the FFAs with the NIPAs and for bringing them closer into alignment with international standards
- Progress on this project is described in a forthcoming article in the *Survey of Current Business*
- Starting in late September, the two agencies will begin a regular, annual publication of the integrated estimates

**Notes:**
In 2004, “Integrated Macroeconomic Accounts for the United States: Draft SNA-USA,” a paper by Teplin and others was drafted and further revised in 2005.  

This paper documents progress made on the integration project and lays out what is to be done in the future.

They develop a set of tables they term SNA-USA which more closely meet international reporting standards.

A paper is forthcoming in the Survey of Current Business which, among other things, documents progress on this project since the Teplin paper.

Later this month, new estimates will begin regular, annual publication by BEA and FRB based on the Teplin and others’ tables.

## FCC Spectrum Auctions

- Efforts are underway to develop estimates for the electromagnetic spectrum
- Estimates are needed for the Federal non-produced non-financial assets and for corporate sector balance sheets
- A priority is to measure correctly receipts from spectrum auctions

**Notes:**
As one example of the effort toward this goal, I am currently in the process of developing a set of values for the electromagnetic spectrum. 

An aggregate value of the spectrum to the Federal government of this non-produced non-financial asset is to be determined to recognize this as an asset of significant value in the government balance sheet being transferred to corporate balance sheets.  

More immediately, for the Flow of Funds Accounts, it is necessary to correctly measure receipts from these auctions as the spectrum is recognized as a non-produced non-financial asset included in line 24 of Table F.106 in the Flow of Funds Accounts.

## Where We Go from Here

- Improve estimates of changes in balance sheets that arise from sources other than transactions
- Continue to investigate data sources and methods or concepts for real estate values in some sectors
- Reconcile remaining differences between the current and accumulation accounts and the international transactions accounts
- Improve alignment of U.S estimates with international standards

**Notes:**
In our ongoing efforts we plan to:

1)  Improve estimates on balance sheets other than transactions, such as price changes or writing off bad debt 

2)  Find or create improved data for real estate values in some sectors and techniques for separating the market value of land and structures.

Increase reconciliation of remaining differences between the current and accumulation accounts and the international transactions accounts.

These efforts will allow us to improve alignment with international standards.

## Questions

- How important a problem is the quarterly volatility in the NIPA - FFA discrepancy?
- Is it more important, in this project, to address statistical problems first, and then methods and concepts or vice versa?

**Notes:**
This leads to two final questions:

1)  How important are the quarterly problems?
They seem to indicate an underlying problem that should be identified.  It is only a problem when the NIPAs and FFAs are used at the quarters (and they may not have been designed for this) AND this is only a problem when this is what the data users need.

2) Is it more important to address statistical problems first, and then methods and concepts or vice versa? 
We feel it is reasonable to iron out the methods and concepts first and the data will follow more logically.