April 24, 2008 Programmatic Impacts of BEA's FY2008…

April 24, 2008

         Programmatic Impacts of BEA's FY2008 Appropriations
             on the Regional Economic Accounts Directorate

       The FY 2008 Consolidated Appropriations Act provided $77.5 million for the Bureau of
Economic Analysis (BEA). That amount is $3.9 million less than the budget requested by the
President. This funding level provides for a regional statistics initiative, but does not provide full
funding for BEA base programs in FY 2008. In order to align base programs with the new
budget, BEA will make permanent reductions in various statistical programs, including in its
regional economic accounts.

        Specifically, BEA plans to reduce the level of industry detail it publishes for its county-
level personal income estimates from a NAICS subsector level (3-digit codes) to a NAICS sector
level (2-digit codes). This roll-up of industry-level detail for counties will occur beginning with
reference year 2008, to be released in calendar years 2009 and 2010. In addition to this direct
effect on BEA's local area personal income (LAPI) estimates, there will be indirect effects on
BEA's gross domestic product (GDP) by metropolitan area estimates and on its Regional Input-
Output Modeling System (RIMS II) regional economic multipliers. Plans to accelerate sector
level earnings by industry estimates also have been indefinitely postponed.

        In September 2007, BEA released, for the first time, prototype estimates of GDP by
metropolitan area for 2001-2005, at the NAICS subsector level. The cutback in the county-level
personal income industry detail will limit release of the metropolitan area GDP estimates to the
NAICS sector level beginning with the 2008 reference year. The quality of these sector level
GDP by metropolitan area estimates as well as estimates of real GDP by metropolitan area, will
likely be reduced because of the lack of subsector-level input data. Further, plans to accelerate
the release of GDP for metropolitan areas have been indefinitely postponed.

       BEA's RIMS system uses BEA LAPI data, the BEA national input-output accounts, and
BLS' QCEW (Quarterly Census of Employment and Wages) data--as edited by BEA's LAPI
staff--as inputs to produce its regional economic multipliers. Beginning with reference year
2008, LAPI staff will not edit the QCEW data at the detailed industry level. RIMS staff will be
required to use unedited QCEW to compute regional multipliers, which potentially could
produce lower-quality estimates of RIMS economic multipliers. 1

       The following table details the effects and timing of the planned programmatic cutbacks
on BEA's local area personal income, GDP by metropolitan area, and RIMS economic multiplier
estimates. Currently, BEA does not foresee any impacts on its GDP by state or state personal
income programs.

1
  LAPI staff edit the BLS QCEW data to account for anomalies in the data and to develop a consistent economic
time series for industries and for geography.
          Impact of Planned Regional Program Cutbacks in County-level Industry Detail*


                               2008                        2009                     2010

                                                                           Annual LAPI estimates
                      Annual LAPI estimates    Annual LAPI estimates       for 2008 released at the
                      for 2004-2006 released   for 2005-2007 released      more aggregate NAICS
  April
                      at typical NAICS         at typical NAICS            sector level, but for
                      subsector level.         subsector level.            2006-2007 at the typical
                                                                           NAICS subsector level.


                      Accelerated              Accelerated                 Accelerated
                      metropolitan area        metropolitan area           metropolitan area
                      personal income for      personal income             personal income
                      2007 produced at         estimates for 2008          estimates for 2009
                      NAICS subsector but      produced and released       produced and released
                      edited and released at   at the more aggregate       at the more aggregate
  August              typical NAICS sector     NAICS sector level.         NAICS sector level.
                      level.
                                                                           RIMS is updated with
                      RIMS is updated with     RIMS is updated with        the more aggregate
                      2006 LAPI data and 6-    2007 LAPI data and 6-       2008 LAPI data and 6-
                      digit edited QCEW        digit edited QCEW data.     digit unedited QCEW
                      data.                                                data.




                      GDP by metropolitan      GDP by metropolitan         GDP by metropolitan
                      area for 2006 released   area for 2007 released at   area for 2008 released
  September
                      at typical NAICS         typical NAICS subsector     at more aggregate
                      subsector level.         level.                      NAICS sector level.




                                               County compensation         County compensation
                      County compensation      for 2008 released at the    for 2008-2009 released
                      for 2005-2007 released   more aggregate NAICS        at the more aggregate
  December
                      at typical NAICS         sector level, but for       NAICS sector level, but
                      subsector level.         2006-2007 at the typical    for 2007 at the typical
                                               NAICS subsector level.      NAICS subsector level.


* red font denotes change from current practice or plan.