transactions between the United States and foreign countries. Major types of transactions covered are merchandise trade, travel, transportation, income on international investment, U.S. Government military and other services, U.S. private services, private remittances, foreign aid programs, short- and long-term private capital flows, and changes in foreign official assets in the United States and U.S. official reserve assets. 2. International investment estimates.-This work consists of the preparation, development, and analysis of estimates of U.S. direct investment abroad; foreign direct investment in the United States; income flows associated with these investments; and other economic transactions of multinational enterprises, including their trade, employment, taxes, and plant and equipment expenditures. Major sources of the data base for foreign transactions are the Census Bureau, BEA, and the Treasury Department. Analysis of Business Trends The outputs of this activity include surveys of business investment, econometric models of the U.S. economy, estimates of the costs of pollution. abatement, a system of business cycle indicators, and GNP-related measures to help evaluate national wellbeing. The work consists of: 1. Surveys and analyses of expenditures for plant and for equipment.-Quarterly data are collected and published covering: expected capital expenditures for the current quarter and each of the next two quarters for all nonfarm industries; actual expenditures for the same industries; the initiation and carryover of new investment projects by manufacturing and public utility companies; and an evaluation by manufacturing companies of the adequacy of their existing plant and equipment taking into account their expectations of sales over the next 12 months. The first annual data for capital expenditures expected for the new year are published in January. Annual estimates of actual and expected business sales, percent change in the prices of capital goods purchased, and for manufacturing and utilities only, percent change in the prices of goods and services sold, are also published in January. The existence of the plant and equipment survey mechanism also permits special surveys to be conducted relating to current economic problems. Examples of such surveys include on conducted to assess the effects of stringen financial conditions in 1967 on plant and equipment outlays, and another to estimate the shift to last-in, first-out inventory accounting during the sharp price inflation of 1974 for use in preparing the GNP inventory valuation adjustment. 2. Quarterly data are collected and published on capacity utilization rates, both operating and preferred, by manufacturing industries. 3. Econometric models.-Short-term forecasts of economic activity are made using a quarterly model of the U.S. economy consisting of about 150 equations. Medium-term projections of economic activity are made using an annual model of the U.S. economy consisting of about 100 equations. 4. Environmental statistics.-Annual estimates of capital expenditures and operating costs for pollution abatement are prepared within the framework of the national economic accounts and published annually. These estimates are classified by sector of the economy (consumers, business, and government), and by the element of the environment affected (air, land, and water). Annual estimates of actual and expected business capital expenditures for pollution abatement covering all nonfarm industries are also published. 5. GNP-related measures of national well-being.Research is underway to develop the concepts, statistical methodology, and measures relevant for evaluating national well-being within the framework of the GNP accounts. 6. Statistical indicators.-This work consists of the preparation, development, and analysis of a system of leading, lagging, and coincident business cycle indicators, and data which depict long-term economic trends. Role of Advisory Groups The national economic accounts have been a basic development of the U.S. economic statistical system over the last 45 years. The evolution of an integrated set of economic accounts within the context of a decentralized statistical system has also provided a major impetus for improvements in Federal data collection. Thus, over the years, the role of the accounts in identifying priorities for improving economic data has acquired greater importance.' In particular, a high priority is given to statistical improvements that increase the coverage, accuracy, and timeliness of underlying data used in preparing the accounts. BEA is not primarily a statistical collection agency as it conducts a limited number of its own surveys. Rather, it relies heavily on data from non-BEA sources to construct the economic accounts. To keep apprised of changes in statistical series and to inform data providers of additional data needs, BEA maintains regular communication with the public and private sources of data used to prepare the accounts. For Federal agencies this interchange often occurs at interagency meetings held to discuss statistical areas of broad concern such as sales, inventory, payroll, profits and price statistics. These interactions have resulted in such improvements as expanded coverage and increased detail of information collected via the Census Bureau's periodic economic surveys and censuses, additional tabulations by the Internal Revenue Service of information on tax returns, improvements in the wholesale and consumer price indexes computed by the Bureau of Labor Statistics, and efforts by data collection agencies to provide information to BEA in a timely fashion for incorporation in its various accounts. Another important factor in the development of the national accounts has been the general expansion in the supply of economic statistics. New survey data and tabulations of administrative records (e.g. social security) although undertaken for reasons other than for use in the economic accounts and despite conceptual differences have permitted development and refinement of the accounts that otherwise might not have been feasible. Federal and private advisory groups have also played an important role in the development of the accounts by alerting BEA to user needs for data. Some of these groups include the Federal Statistics Users' Conference, National Accounts Review Committee, Advisory Committee on the Presentation of Balance of Payments Statistics, National Bureau of Economic Research Conference on Income and Wealth, and Advisory Committee on Gross National Product Data Improvement. BEA's ad hoc relationships with agencies have typically resulted in data improvements which were 'For an extended discussion of the historical development of the national income accounting framework, see Chapter 3 of Revolution in United States Government Statistics, 1926-1976 by Joseph W. Duncan and William C. Shelton (Washington, D.C., U.S. Government Printing Office, 1978.) easiest to achieve or least costly to implement. The improvements were guided by BEA assessments over the years of the underlying data which it considered to be most in need of improvement and the recommendations of the 1957 report of the National Accounts, Review Committee.' This report included selected data items in need of improvement along with its study of conceptual issues and extensions of the accounts into new subject areas. It was with the establishment of the Advisory Committee on GNP Data Improvement that the first comprehensive evaluation of the data base was undertaken independently of BEA. Advisory Committee on GNP Data In 1973, the Office of Management and Budget established the Advisory Committee on Gross National Product Data Improvement. The purpose of the Committee was to identify in a systematic way needed improvements in the quality and timeliness of the statistical data which are used in constructing the national income and products accounts (NIPA). The Committee's report which was completed in 1977 includes a 6-year plan for implementing the recommendations. The recommendations affect the programs of many agencies of the Federal Government and their implementation is being coordinated by the Office of Federal Statistical Policy and Standards. The origin of the Committee reflected both the recommendations of the President's Commission on Federal Statistics and the recognition by OMB of the need for better information on which to base Government and private economic policy decisions. In its report, the Commission recommended periodic evaluation and review of Federal statistical activities to provide a continuous system for strengthening and maintaining the quality of the statistics produced.' It was suggested that such evaluations be conducted by the Statistical Policy Division of OMB (now the Office of Federal Statistical Policy and Standards, U.S. Department of Commerce). In some cases the evaluations would be done with the collaboration of an independent agency or a group of representative experts without direct relationships with the Federal Government. 'The report of the National Accounts Review Committee, "The National Economic Accounts of the United States; Review, Appraisal, and Recommendations," was published in the National Economic Accounts of the United States, Hearings before the Subcommittee on Economic Statistics of the Joint Economic Committe, Congress of the United States (1957). 'Federal Statistics, Report of the President's Commission Vol. 1, 1971, pp. 171-176. The need for better economic information became highly visible by substantial revisions in the estimates of GNP in 1971 and 1972, which some Federal policymakers contended misled their analysis of needed policy actions during critical phases of the business cycle. The review of the causes of these revisions clearly revealed that improvement of the reliability of the national economic accounts was constrained by the accuracy, timeliness, and adequacy of the underlying data used in preparing the estimates. As the last review of the national accounts was in 1957 and that review concentrated primarily on conceptual issues and extending the then limited set of accounts, a comprehensive outside review focusing on the national accounts' data base-its sources, weaknesses and recommended improvementsseemed appropriate if not overdue. Six nongovernmental experts were selected to serve on the Advisory Committee. Summary of Recommendations of Advisory Committee on GNP Data Improvement The recommendations included in the report reflect the views of the Advisory Committee on GNP Data Improvement. They should not be construed as necessarily reflecting the opinions or priorities of the Office of Federal Statistical Policy and Standards or of BEA, although at the present time the Office of Federal Statistical Policy and Standards is working with the various affected agencies to evaluate the feasibility of the Committee's recommendations and the priorities for implementation. A number of the Committee's recommendations are already incorporated in this Framework. In general, weaknesses in the data base used to construct the national income and product accounts result from the source data not being available in time for incorporation into the annual or quarterly estimates, inadequate coverage of certain economic sectors in ongoing surveys, and insufficient detail for national accounting purposes in the data that are being collected. Also, it was found that some errors in the data could be attributed to problems with the sampling and estimating methodology used in collecting and processing the survey data. These data gaps necessitate various indirect estimating 'Advisory Committee on Gross National Product Data Improvement, Gross National Product Data Improvement Project Report, U.S. Department of Commerce, October 1977. procedures and judgmental determinations in preparing the GNP estimates. The Committee's recommendations either directly fill the data gaps or provide more accurate proxy measures on which to base the estimates. Suggested improvements include speeding up the availability of some series, expanding the coverage or detail in ongoing surveys, or devising methods of obtaining more frequent direct measures of particular economic activities through modifications of existing data collection instruments or the institution of new surveys. Suggested improvements in the sampling and estimating methodology of particular surveys are also specified, as well as some recommended improvements in the BEA estimating methodology. A highly selective list of major recommendations follows. The recommendations are not listed in order of priority. Quarterly Data Improvements The quarterly estimates of GNP and national income are the most widely used framework by policymakers and analysts in assessing and forecasting U.S. economic activity. Significant revisions in the quarterly estimates have been of concern to users of the data and were a major factor for the establishment of this Advisory Committee. The quarterly estimates are extrapolated from the most recent July estimates for which annual data are available. Weaknesses in the quarterly estimates result primarily from the lack of monthly or quarterly data for particularly significant and volatile sectors of the economy, inadequate coverage of sectors by some periodic surveys, and shortcomings in the survey methodology which result in inaccuracies or biases in the survey data. In the consideration of improvements for quarterly NIPA estimates an important factor is the trade-off between timeliness and accuracy. In order to have timely estimates for policy and analytical uses, it is necessary to restrict the amount of detailed data collected monthly or quarterly. The Committee therefore decided that in some instances, improvements in annual data coupled with good, current proxy or cross-checking measures are sufficient. There are also improvements suggested for annual surveys which might later be extended to monthly or quarterly surveys once it has been determined feasible to collect such information more frequently without having a deleterious effect on the timeliness of the data (e.g., more detailed information on product detail of retail sales). Some of the major recommendations for im proving the data base of the quarterly NIPA estimates include: 1. Strengthening the Bureau of Labor Statistics' 3. Institution by the Census Bureau of a quarterly 4. Expanding items collected in the Federal Trade Commission's Quarterly Financial Report to explicitly identify employer contributions, on an accrual accounting basis, to private pension (retirement), health (Blue Cross-Blue Shield, etc.) and welfare (life insurance, day care, etc.) employee benefit plans; 5. Modifying the new survey of income of commercial banks (jointly sponsored by the Federal Reserve Board, Comptroller of the Currency, and Federal Deposit Insurance Corporation) to obtain quarterly tabulations of net income 65 to 70 days after the reference quarter and net income for domestic entities of the banking companies, as distinct from their foreign affiliates; 6. Strengthening the sampling and statistical methodology of BEA's plant and equipment survey, and 7. Consistent treatment of military goods with long production lead time (e.g., ships, aircraft, missiles, etc.), whether on a cost-plus or fixedprice contract, to conform with the treatment of other industries by recording in the Census Bureau's Manufacturer's Shipments, Inventories, and Orders series unfinished items as work in process inventories and the actual shipment of goods as liquidation of inventories of finished goods. During the course of the Data Improvement Study, the Census Bureau commissioned the National Bureau of Economic Research (NBER) to make an intensive study of means to provide more accurate measures of business inventories. Experimental surveys, company visits, delineation of conceptual issues, and so forth, were undertaken as part of the NBER study, which is planned for publication in 1978. The Advisory Committee's recommendations for the improvement of inventory data, of course, are not as extensive as those that will be emanating from the NBER study. However, the Committee's review has aimed at identifying major existing weaknesses and recommendations which appear to be essential to a basic program for improving inventory statistics. Some of the recommendations include: in the Census Bureau's monthly and annual survey of manufacturing firms, the collection of companywide information on inventories including inventories held in facilities other than production plants and the introduction of a full probability sample of companies in the monthly survey; in the Census Bureau's monthly retail trade survey, suggested methods to maintain an adequate sample, the collection of sales and inventory data from identical respondents, collection of consistent information from the same firms on purchases, sales and gross mark-up as an alternative method of estimating change in retail inventories, and an alternative estimate based on using a screened sample of firms that report inventories from actual records; and the expansion of the Agriculture Department's surveys of crop inventories to include those owned by farmers but held in off-farm storage facilities and the expansion of Agriculture's semiannual survey of cattle inventories to a quarterly survey. Improvements for Annual Nonfarm Data Sources The annual revision of the NIPA estimates prepared each July provides more accurate readings on the state of the economy than the estimates prepared every quarter. Revised estimates are made for the recent year as well as the two preceding years to incorporate additional and revised information that has since become available such as benchmark and other types of revisions, statistics of income data, and annual survey data. The annual data are considered more reliable than quarterly data as they include more observations, are under less severe time constraints resulting in improved accuracy in reporting and tabulation, and often contain more detailed information for allocating goods and services to final markets and industries. The July revisions also are important because the quarterly estimates are extrapolated from these annual levels. Therefore, deficiencies in annual data affect the accuracy of the current quarterly estimates especially as to levels. To minimize such error, it is desirable to have as much data as possible for inclusion in the first July revision. Deficiencies in the existing data include: annual series not available in time for inclusion in the first July revision; lack of adequate annual benchmarks for some important quarterly series; insufficient detail on sales of products by type; and the lack of both quarterly and annual data resulting in interpolations and extrapolations from quinquennial benchmark estimates. To strengthen the annual data base, the Committee recommended such improvements as: 1. Speeding up the tabulation of the Census Bureau's Annual Retail Trade Survey so that the data are available for inclusion in the first July revision and obtain increased detail on types of product sold; 2. Speeding up the tabulation of the Census Bureau's Governmental Finances Survey so that the data are available for the first July revision; 3. Implementation by the Census Bureau of annual sample surveys of the real estate industries and nonprofit organizations once the quinquennial census of services has been similarly expanded; 4. Collecting data in the Census Bureau's Annual Survey of Manufactures on inventories held in manufacturers' sales branches and other auxiliaries in addition to that collected on inventories held in processing establishments for a companywide measure of inventories; 5. Institution by the Federal Trade Commission of an annual survey to collect from a sample of corporations included in the Quarterly Financial Report survey selected items from their audited operating statements and balance sheets. The data from the survey should be available for inclusion as an interim benchmark of the corporate profits estimates in the first July revision; 6. Modification of corporate and noncorporate business tax returns by the Internal Revenue Service to collect information on inventory valuation-the basis and methods of cost determination; and 7. Tabulation by the Internal Revenue Service of Schedule M accompanying corporate tax returns which reconciles taxable profits and balance sheets with stockholder reports. Improvements for the Census Bureau's Economic The censuses of agriculture, mineral industries, construction industries, manufactures, retail and wholesale trade, selected services, transportation, and State and local governments are conducted every 5 years by the Bureau of the Census. These censuses are the major source of information used to construct quinquennial input-output (I-O) tables which provide benchmark estimates for the GNP components of personal consumption expenditures and producers' durable equipment. The I-O tables estimate the flows of goods and services through their intermediate industry uses and distribution channels until they are sold to final users. The tables also are an important tool for economic analysis in their own right. The majority of estimating problems in constructing the I-O tables result from (1) insufficient data for allocating certain goods and services between intermediate and final users and among classes of these two broad groups, and (2) insufficient data in certain cases for estimating the transportation and distribution costs of goods. These data gaps generally can be reduced through more information on purchases of goods and services, more comprehensive reporting by establishment on product line of sales by class of customer, fuller information on gross margins, and extensions of coverage of the censuses to include industries for which little or no data are currently collected. Major recommendations for the economic censuses, some of which are being implemented in the 1977 censuses, include: 1. Collecting data on materials and services purchased by establishments as part of each economic census; 2. Extending coverage of selected services to all services for profit; 3. Establishing a quinquennial census of not-forprofit organizations and of the real estate industry; 4. Transforming the present census of transportation into a census of transportation industries with a full complement of questions on inputs and outputs by relevant subindustries; 5. Collecting data on supplements to wages and salaries (e.g., employer contributions to Social Security, private pension, health and welfare funds) in all economic censuses; 6. Collecting additional information on inventories in appropriate censuses including |