The Importance of Economic Census Data for Federal Policy

1. The Importance of Economic Census Data for Federal Policy Katharine G. Abraham Member, Council of Economic Advisers Hi-Beams for the Economic Road AheadWashington, DCSeptember 26, 2011

2. Outline • Economic Census data critical to the reliability of economic accounts and business survey data • Federal policy makers use data from economic accounts and business surveys to. . . • Understand the state of the economy and forecast future economic conditions • Allocate federal funds to state and local governments • Make informed policy choices and implement existing policy

3. Economic Accounts and Business Surveys Rest on the Economic Census • National economic accounts benchmarked every 5 years to Economic Census data • National output (Gross Domestic Product) • Disaggregated measures of output by industry and region • Input-output tables that show linkages across sectors • Sample frames and weights for business surveys conducted by the Census Bureau rest on information collected during the Economic Census • Large number of monthly, quarterly and annual surveys • Roughly 40 percent of firms included in the Economic Census were not in business five years earlier

4. Dynamism of the U.S. Economy Makes the Economic Census Especially Important

5. Dynamism of the U.S. Economy Makes the Economic Census Especially Important (cont’d)

6. Outline • Economic Census data critical to the reliability of economic accounts and business survey data • Federal policy makers use data from economic accounts and business surveys to. . . • Understand the state of the economy and forecast future economic conditions • Allocate federal funds to state and local governments • Make informed policy choices and implement existing policy

7. Understanding the State of the Economy and Forecasting Future Economic Conditions • U.S. macroeconomic policymakers rely on information about Gross Domestic Product (GDP) and its components • The White House, the Treasury, and the Congressional Budget Officeuse GDP data to prepare the federal budget and to project federal spending and tax receipts. • An error of ½ percentage point in the forecast of trend real GDP growth would cause the federal deficit forecast to be off by a cumulative $1.6 trillion over the standard ten-year window. • The Federal Reserve Systemrelies on GDP data to formulate sound monetary policy

8. Effect of ½ Percentage Point Lower Trend GDP Growth on Federal Budget Deficit Projection Source. Analytical Perspectives, table 3-1 (Office of Management and Budget), adjusted by CEA. Revision assumes that real GDP growth is ½ percentage point lower than baseline for each year 2011-2021, with no change in the unemployment rate.

9. Outline • Economic Census data critical to the reliability of economic accounts and business survey data • Federal policy makers use data from economic accounts and business surveys to. . . • Understand the state of the economy and forecast future economic conditions • Allocate federal funds to state and local governments • Make informed policy choices and implement existing policy

10. Allocation of Federal Funds • Data from BEA Regional Income and Product Accounts used to distribute $327 billion in federal funds in FY2010 Source: BEA. Figures in billions of dollars.

11. Outline • Economic Census data critical to the reliability of economic accounts and business survey data • Federal policy makers use data from economic accounts and business surveys to. . . • Understand the state of the economy and forecast future economic conditions • Allocate federal funds to state and local governments • Make informed policy choices and implement existing policy

12. Example: Estimating the Impact of Policy Choices on Jobs and Output • Important for DOD planners to assess the economic impact of military base closures on communities • Analyses make use of BEA regional input-output modeling system • Broad interest in the impact of infrastructure spending on jobs • DOT uses BEA industry input-output tables to estimate the impact of specific transportation projects on jobs • CEA and CBO have used GDP data and BEA industry input-output tables to estimate the effects of infrastructure spending on jobs • GDP and input-output estimates rest on the Economic Census

13. Example: Forecasting the Demand for Transportation Infrastructure and Equipment • The Department of Transportation prepares periodic forecasts of the demand for transportation infrastructure • In developing its forecasts, the Department relies on data from the Commodity Flow Survey • In Economic Census years, this survey collects detailed information about establishments’ shipments, including value, commodity type, weight, destination, and mode of transportation • Data from the Economic Census are used to stratify the sample by industry, size and location and to compute weights for aggregate estimates

14. Example: Determining the Small Employer Premium Tax Credit for the Affordable Care Act • The Department of Health and Human Services is responsible for determining the premium tax credit that small employers will receive under the Affordable Care Act • Determination requires data on the average premium in the employer’s state • Data for this purpose obtained from the Medical Expenditure Panel Survey—Insurance Component (MEPS-IC) • Survey collects data on health insurance plans offered by private and public employers and measures the cost of employer-provided health insurance • Sample for the MEPS-IC rests on the Economic Census