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Rapid Estimates of U.S. GDP:

Timeliness, Estimating Methods & Accuracy

Dave WasshausenInternational Seminar on Timeliness, Methodology and Comparability of Rapid Estimates of Economic Trends

Ottawa, Canada

May 27-29, 2009

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Timeliness

▪ “Advance” estimates of GDP released toward the end of the first month after the end of the quarter.

Based on partial source data and BEA assumptions

Complete set of expenditures estimates; partial set income estimates

Corporate profits and net interest are not prepared due to insufficient source data

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Timeliness

▪Tradeoff between quality and timeliness

Try to strike the appropriate balance between accuracy and timeliness

BEA releases several “vintages” of GDP estimates, each subsequent vintage based on better source data

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Share of Source Data for Quarterly Estimates of GDP

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Source Data for Advance Estimate

▪ Three months of source data are available for: Consumer spending on goods Shipments of capital goods excluding aircraft Motor vehicle sales and inventories Manufacturing durables inventories Federal government outlays Consumer, producer and international prices

▪ Only two months of data are available for most other key source data (including construction spending, foreign trade, & remaining inventory series)

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Estimating Methods

▪ Retail Control Method

▪ Commodity Flow Method

▪ Price-Times-Quantity Method

▪ Judgmental Trend

▪ Imputations

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Revisions and Accuracy

▪ Revisions and accuracy are related, but not the same

Some of the most inaccurate data have never been revised

Some of the most accurate data are subject to regular revisions

▪ Revisions must be judged against average growth and volatility in growth

▪ Publish regular revision studies (Feb. 2008)

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Revisions

▪Single largest source of revisions is updating of seasonal factors

▪Largest source of revisions in trend growth is changes in concepts, methods, and source data intended to update the accounts and improve accuracy.

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Accuracy

▪ Current quarterly estimates of real GDP correctly indicate: Direction of change 98 percent of the time Whether accelerating or decelerating 74

percent of the time Whether growth is above, near, or below

trend growth more than three-fifths of the time.

▪ Estimates have also been shown to be un-biased, with no identifiable bias from the introduction of real time data

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Comparisons of Revisions to GDP

Vintages Average Average without compared regard to sign

Advance to preliminary… 0.2 0.5Advance to final………… 0.2 0.7Advance to latest………. 0.4 1.1

Advance to preliminary… 0.1 0.5Advance to final………… 0.1 0.6Advance to latest………. 0.3 1.2

Current-dollar GDP

Real GDP

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Revisions to Real GDP estimates

Real GDP Growth Rate: Quarters, 2008

0.6

1.9

-0.3

-3.8

0.9

3.3

-0.5

-6.2

1.0

2.8

-0.5

-6.3

0.9

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

08Q1 08Q2 08Q3 08Q4

Advance Preliminary Final Annual Revision

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Revisions to GDP for QII, QIV

▪Large changes in energy prices (upward in QII, downward in QIV). Wedge between GDP and Gross

domestic purchases prices. Inventory valuation adjustment.

▪Difficulty of projecting data for the missing month.

▪ Importance of publishing “key assumptions.”

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Conclusion

▪ BEA’s goal: Early estimates that provide users with a useful “snapshot” of the economy (in the aggregate and by component)

▪ BEA’s early estimates do a relatively good job providing an overall picture of economic activity. In general, they tell us: If the economy is expanding or contracting If growth is accelerating or decelerating If growth is high or low relative to trend What major components are contributing to growth The timing of business cycle peaks and troughs