Archive for the 'National' Category

First-Quarter GDP Defense Spending

In the first quarter of 2012, defense spending declined at an 8.1 percent annual rate, reflecting decreases in compensation of employees (accompanying a drop in the number of active-duty military personnel), in purchases of goods and services, and in investment for defense equipment. In contrast, based on defense outlays data in the Treasury Department’s Monthly Treasury Statement (MTS), some economic forecasters expected a smaller decrease or even an increase in defense spending, but this quarter’s MTS data on defense outlays were boosted by certain payments in the first quarter that reflected the timing of when bills were paid rather than the timing of when the actual purchases were made.

While the MTS records the cash outlays of the U.S. government, the Bureau of Economic Analysis (BEA) national accounts record defense spending on an accrual basis. In other words, the timing of expenditures recorded in gross domestic product (GDP) is intended to align with when the economic activity takes place. BEA routinely makes a number of timing adjustments, many of which are documented in the methodology paper, Government Transactions (MP–5).

In general, MTS data can be useful for tracking BEA’s defense consumption expenditures and gross investment, provided that users are aware of BEA’s adjustments to the MTS data and key methodological differences. The first quarter of 2012 is a case in point. MTS outlays for defense procurement increased in the first quarter; however, this increase was more than accounted for by an increase in Air Force procurement. Outlays for Army and Navy procurement fell. The increase to Air Force procurement outlays stemmed from a very large increase to Air Force “other” procurement. This account contains spending for noncombat vehicles, parts, small equipment, and other activities. This account is often volatile because of accounting practices rather than from actual fluctuations in procurement.

As a result, BEA’s analysts make timing adjustments for this account that spread this spending over the year based on the estimated fiscal year outlays from the federal budget (this adjustment may be thought of as a simple form of seasonal adjustment). Spreading the first-quarter spending related to the timing of payments for Air Force “other” procurement over the year removes the large spike in the first quarter that offset the declines in most other defense spending categories, resulting in the 8.1 percent decrease in the first quarter.

For more information on the relationship between the MTS and BEA’s estimates of federal government spending, see the box on page 6 of the February 2006 Survey of Current Business.

GDP Growth Slows in First Quarter

Real gross domestic product (GDP) increased 2.2 percent in the first quarter of 2012 after increasing 3.0 percent in the fourth quarter of 2011, according to estimates released today by the U.S. Bureau of Economic Analysis.

First-quarter highlights
The slower economic growth reflected slower growth in inventory and fixed investment by businesses:

• The deceleration in inventory investment was primarily due to reduced inventory investment in manufacturing and in wholesale industries. In contrast, inventory investment in retail industries increased, especially in motor vehicles and parts.

• The slower growth in fixed investment was mainly due to slowdowns in industrial equipment, in computer and related equipment, and in power and communication structures. These contributions to slower growth in GDP were partly offset by faster growth in consumer spending, mainly for services, and in services exports.

Prices of goods and services purchased by U.S. residents rose 2.4 percent after rising 1.1 percent. Energy prices turned up, while food prices slowed. Prices, excluding food and energy, rose 2.2 percent after rising 1.2 percent.

Personal income
Real disposable personal income—which adjusts personal income for changes in consumer prices and taxes—rose 0.4 percent in the first quarter versus 1.7 percent in the fourth quarter. The slower growth mainly reflected a 2.4 percent rise in consumer prices in the first quarter versus a 1.2 percent rise in the fourth quarter.

Personal saving
The personal saving rate—saving as a percentage of disposable personal income—was 3.9 percent in the first quarter, compared with 4.5 percent in the fourth quarter. The first-quarter saving rate was the lowest since the fourth quarter of 2007.

To learn more about GDP, read the full report.

GDP and the National Accounts: One of the Great Inventions of the 20th Century

BEA Director Steve Landefeld

Imagine you’re trying to find your way through a thick forest. It’s a difficult task. You have nothing to help you navigate—no compass, no GPS, and no communications device to use to contact someone for help. In fact, in your wandering, you’ve lost your bearings so completely that you’re not even sure where you’ve been, let alone where you’re going. 

Now imagine you’ve been given an overhead view of the forest that shows you where you currently are, where you’ve traveled, and which direction you should head. In essence, that’s what the U.S. Bureau of Economic Analysis (BEA) does for everyone trying to figure out what course to steer through the U.S. economy. The economic statistics produced by the Bureau allow policymakers, businesses, and households to see where the economy has been and where it might be headed, so all can make better informed decisions on what course of action they should take.

Beginning today, we will feature some of these statistics and give you some insight into what they mean. Welcome to the first of BEA’s blog posts. We hope readers will find these posts a reliable source of easy-to-understand information about the U.S. economy. We also hope readers will gain interesting perspectives from some of the statistics that will be featured.

Probably the most followed number that BEA produces is gross domestic product (GDP). GDP is the value of all goods and services produced in the United States. Its development began in the mid-1930s when our elected leaders were trying to figure out how to guide the nation out of the depths of the Great Depression. Their efforts were seriously hampered because they simply did not know what was going on in the economy. The absence of reliable data about the economy made it difficult to develop an action plan. It was like being lost in a forest.

So a predecessor agency to BEA in the Commerce Department enlisted economist Simon Kuznets (who would eventually win a Nobel Prize for his efforts) to develop the first set of national economic accounts, which were presented in a report to Congress in 1934. By 1942, the first annual estimates of gross national product were introduced to complement the national income data and facilitate planning for World War II. 

In their textbook on economics, Paul Samuelson and William Nordhaus noted that “while the GDP and the rest of the national income accounts may seem to be arcane concepts, they are truly among the great inventions of the twentieth century.” 

Today, GDP and the national accounts have become a mainstay for economic analysis. In 2000, GDP was recognized as one of the great inventions of the 20th century. By providing a steady stream of useful economic data, the GDP accounts have played a significant role in the country’s economic well-being. 

“Much like a satellite in space can survey the weather across an entire continent, so can the GDP give an overall picture of the state of the economy,” Samuelson and Nordhaus observed in their textbook. “It enables the President, Congress, and the Federal Reserve to judge whether the economy is contracting or expanding, whether the economy needs a boost or should be reined in a bit, and whether a severe recession or inflation threatens.”

Of course the economy has changed quite a bit in the last 75 years, and the GDP accounts have changed along with it. New innovations and methodologies have continually been incorporated to make the accounts as accurate and relevant today as they have been since their creation.