Economic statistics are used by both government and industry to understand current economic conditions and to predict future conditions. Such statistics are part of the process by which government policies and laws are developed, implemented, and evaluated; and substantial components of the federal budget are adjusted to reflect changes in various economic statistics, such as measures of price changes. Business and individual decisions on spending and investment are influenced by economic statistics. Economic statistics also feed into academic and other research, which in turn often influences public policy debate and private sector decisionmaking. Experts in both the public and private sector, including many government agency officials responsible for producing economic statistics, have long-standing concerns about the accuracy and adequacy of these statistics. Among the most common concerns are that the statistics inadequately reflect the increased importance of international transactions to the U.S. economy, that they do not provide sufficient data to explain the productivity of the economy, and that they poorly measure investment and saving. In response to these concerns, in April 1989, the Chairperson of CEA chaired a working group, including both producers and users of economic statistics within the federal government, that was charged with assessing these concerns and proposing recommendations to address them. In January 1990 and February 1991, CEA issued the working group’s two sets of recommendations for improvement. In releasing the recommendations, CEA noted that, although the recommendations addressed well-known problems with those statistics that most affected budget and monetary policymaking, the recommendations were limited to those that were most cost-effective and could be executed in the short term. To accomplish our first objective of identifying the ESI recommendations and describing their impetus, we reviewed the two sets of ESI recommendations, hearing records, and pertinent literature on economic statistics and interviewed users and producers of economic statistics and economic statistics experts. Because the format and content of the two sets of ESI recommendations differed, we identified the full list of ESI recommendations as those made in either or both sets of recommendations. In some cases, this required our judgment that recommendations in the two sets of recommendations were sufficiently similar to be considered the same. Our combination of the ESI recommendations and the resulting listing of 38 recommendations are provided in appendix II. We interviewed agency program and budget officials and reviewed agency planning and budget documents that they provided to accomplish our other objectives to describe the agencies’ plans, funding, actions to implement other improvements the agencies made to economic statistics, and fiscal year 1995 budget requests for additional economic statistical improvements. We did not assess whether the agencies’ plans fully addressed all the elements of the ESI recommendations, nor did we independently verify the budget data or data provided by the agencies on the specific aspects of their actions. Because several agencies shared responsibility for implementing a number of recommendations (see app. II), our reporting that an agency had completed its planned work in response to an ESI recommendation does not necessarily mean that the recommendation is fully implemented. Also, the recommendations are not necessarily equal in terms of complexity and importance. Thus, an exact count of how many recommendations are completed or pending would not be meaningful and is not presented. We also interviewed senior policy officials at Census, BEA, BLS, the Federal Reserve, OMB, NSF, NASS, and CEA to obtain their views on ESI and other efforts to improve federal economic statistics. We did our work in Washington, D.C., between July 1993 and February 1995 in accordance with generally accepted government auditing standards. We obtained comments on a draft of this report from the Department of Commerce, the Federal Reserve, OMB, CEA, BLS, NASS, and NSF. Written comments by BLS and NASS are discussed in the letter and presented in greater detail in appendixes XII and XIII. Comments by Commerce, OMB, CEA, the Federal Reserve, and NSF are discussed in the letter. We identified 38 recommendations in the 1990 and 1991 ESI announcements and categorized them into 7 areas: the national income and product accounts, service sector, price measurement, labor market, poverty and income, international transactions, and systemwide statistics recommendations. The working group that developed these recommendations included major federal producers and users of federal economic statistics and sought to address well-known problems in statistics that affected public policy. The most serious problem noted by the working group was in measuring output and quality improvements to goods and services in a rapidly changing economy. At the same time, the working group sought to focus the recommendations on areas that it considered feasible for short-term implementation. Because of budget and time constraints, the recommendations were not intended to be comprehensive. (See app. I for a description of the overall context in which the ESI recommendations were developed. Apps. III through IX also discuss context for each of the 38 ESI recommendations; the appendixes are based on our categories of the 38 recommendations.) The federal agencies responsible for implementing the ESI recommendations made plans to implement most of them. The agencies requested more than $95 million and received about $50 million, slightly more than one-half of the funding they requested, to carry out their plans. For example, Census officials said that Census planned to increase coverage of the service sector by beginning a new annual survey of communication services; Census requested about $7 million and received more than $1 million for its plan to address this recommendation. For a few recommendations, the agencies did not make plans because the agencies said they were already carrying out efforts they believed satisfied the intent of the recommendations. For example, BLS officials told us that BLS did not make a plan specifically intended to respond to an ESI recommendation—to reconcile and reduce discrepancies in estimates of employment from two different surveys—because this effort was integral to its overall efforts to improve the two surveys. BLS received $35 million (71 percent of the funds appropriated for ESI) for one systemwide, two-price measurement, and four labor market statistics recommendations. (Apps. III through IX describe the agencies’ plans to carry out each recommendation and the funding requested and received to carry out each recommendation from fiscal year 1990 to 1994.) As of May 1994, the agencies’ plans were in various phases of completion. The agencies’ officials said that the majority of the agencies’ plans for implementing the ESI recommendations were still in progress as of that date. For example, BLS officials said that partial funding limited actions on BLS’ plan to improve coverage of service industries in price indexes. Agency officials said that a few actions they planned for the ESI recommendations were completed by May 1994. For example, Census officials said that Census completed its plan to undertake an annual investment survey. Agencies also reported no progress on a few of the plans. Officials of these agencies generally cited budgetary and other resource constraints as the reason for not taking or completing action. For example, Census officials told us that since they did not receive the $5 million they requested, they were not able to begin Census’ plan to expand corporate financial data by collecting quarterly financial data for the service sector and by expanding coverage of small corporations. There were also instances where an agency completed its plan without receiving all the funding it requested. For example, Census officials said that they were able to complete the substance of Census’ plans to increase coverage of the service sector, although it received $1 million of the $7 million it requested. (Apps. III through IX describe the progress made on the plans for each recommendation as of May 1994.) While ESI enabled agencies to receive additional funding for specific improvements in economic statistics, agency officials reported that, as part of their regular ongoing efforts to adapt to changes in the economy and in source data, other improvements were made with existing funding. These improvements were made in addition to the ESI improvements from fiscal years 1990 through 1994. For example, officials at Census said that Census improved the quality of economic statistics by expanding existing surveys, creating new surveys, expanding data collection, increasing coordination efforts, and developing computer processing projects. (App. X describes other major improvements in federal statistics that agencies reported.) According to agency officials, because ESI was never intended to address all the problems in economic statistics and because many of the plans for the ESI recommendations were not completed, further efforts were needed to improve the quality of economic statistics. The agencies requested an additional $38 million for such improvements in fiscal year 1995. As of December 31, 1994, $18 million in appropriations had been approved for the fiscal year. (App. XI provides information on funding requested and received for planned fiscal year 1995 economic statistical improvements.) Senior policy officials expressed their views of what is still needed to address problems in economic statistics. OMB officials said that the administration is committed to improving economic statistics and that the improvements proposed by BEA, Census, and BLS will result in overall improvements to their statistics. According to a BEA official, although there are further methodological improvements BEA can make, adequate funding will be required to fill gaps in source data. BLS officials said that additional resources are the number one requirement to improve BLS’ statistics. According to the Commissioner, BLS needs to improve service sector data, provide more information on work practices, as well as be more user friendly in data collection and dissemination in the future. Census officials noted that the future of economic statistics is also dependent on effective leadership, not only to oversee current operations, but also to consider how the statistical system may need to change. The Department of Commerce, the Federal Reserve, OMB, CEA, BLS, NASS, and NSF provided comments on a draft of this report. Commerce’s written comments incorporated comments from BEA and Census. All of Census’ and most of BEA’s comments were suggestions for technical clarifications and corrections, and we have incorporated these suggestions where appropriate. BEA said that our report was a useful overview of progress under ESI.