The Importance of, and Challenges to, Incorporating Distributional Information Into Macroeconomic Data

1. The Importance of, and Challenges to, Incorporating Distributional Information Into Macroeconomic Data J. Steven Landefeld, Director NABE Statistics Committee Meeting November 8, 2012

2. Why It’s Important • Existing national accounts and other macro-economic data fail to present a consistent picture of the differential impact of economic growth and change across households, regions, and industries. • Such data are important for understanding the economy and the political economy. • Such data are, in turn, important in informing economic policy, business planning, and social policy. • The causes of, and response to, the “Great Recession” and the recent election are just two examples of the importance of such data.

3. Why It’s Important • In a time of scarce statistical resources and increasing demand for data, we need to more effectively integrate household survey and tax and other administrative data into our national accounts. • BEA/Census/SOI Data - Reconciliation of aggregates and distribution of income • BEA/BLS/SOI Data – Reconciliation of aggregates and distribution of consumer spending • Future work • FRB/BEA Data – Distribution of household assets and liabilities

4. Distributional Information Needed for Effective Economic Policy Analysis • Potential impact of changes in the distribution of income on the economy: • According to research by Dynan, Skinner, and Zeldes, MPS of the top 1% is about 50%, rest is about 10% (including capital gains). • According to CEA, increase in top 1% share might have lowered PCE by 5%. • Expansion of credit and changes in underwriting standards and the recipients of that credit may have played a role in the housing bubble. • Housing losses and restrictions on credit may have disproportionally affected lower income groups’ spending during the contraction and expansion. • In an attempt to get at what “most” households are experiencing, several investment banks developed measures of discretionary spending. • ACCRA has developed a rough regional price to better assess the health of the economy across MSAs.

5. Are You Better Off? Household Income Disposable household Income CPS-ASEC Source: BEA, Census Bureau

6. Measuring Distribution of Income 2006 Household Income Disposable household Income CPS-ASEC Source: McCully, Clint. “Integration of Micro and Macro Data on Consumer Income and Expenditures.“ October 2012.

7. Measuring Distribution of Income 2009 Household Income Disposable household Income CPS-ASEC Source: McCully (2012)

8. Adjustments to Household Income Household Income Disposable household Income CPS-ASEC Source: Fixler, Dennis and David S. Johnson. “Accounting for the Distribution of Income in the U.S. National Accounts.“ September 2012.

9. Consumption Coverage Ratios Ratio of CES values to adjusted NIPA household consumption expenditures (HCE) for selected estimates Regular housing-related expenditures well reported Self-reported “Sin” expenditures not well-reported Owner-occupied rent Purchases of vehicles Tenant-occupied rent Household fuels Food at home Restaurants/hotels Clothing & footwear Alcohol/home Small frequently purchased items not well reported Large irregular expenditures well-reported Source: McCully (2012)

10. Distribution of Spending Household Consumption Expenditures by Quintiles, 2010 Source: McCully (2012)

11. Relevant BEA Projects • Research on the reconciliation and incorporation of income distribution data as supplemental annual data on personal income • Research on the reconciliation and incorporation of consumer spending distribution data as supplemental annual data on personal outlays and spending • Quarterly data on the distribution of GDP by industry • Prototype annual real personal income by state • Longer-term: • Integrated distributional information on the distribution of production, spending, and wealth