Economic Report of the President

major revision of the NIPA occurred 5 years ago and was reported in theJanuary 1976 Survey of Current Business published by the Commerce Department.The current revision will be described in an article in the December1980 Survey. All of the NIPA data discussed in this Report are the revised data,except as noted.The major features of the revision are these:• The data from three major new sources are now incorporated in theNIPA. These are 3EA's 1972 input-output tables, the 1977 censuses,and the 1973 and 1976 Compliance Measurement Program of the InternalRevenue Service (IRS).• Normal data sources which would have been used in the postponed July1980 annual revisions of the NIPA (e.g., IRS tax return information,annual surveys of manufacturers, housing, and retail trade) were alsoutilized in these revisions.• The major conceptual change in the NIPA involves the treatment of certaininternational transactions. The reinvested earnings of incorporatedforeign affiliates of U.S. companies are now included in exports of services.The repatriated earnings of these affiliates were previously includedin exports of services. The reinvested earnings of incorporated foreignownedaffiliates in the United States receive similar treatment thusadding to imports of services. Because the U.S. earnings abroad arelarger than the foreign earnings here, the net result is higher net exportsand gross national product especially since the late 1960s. Grossdomestic product is, of course, unaffected by the change. This changemakes the handling of foreign earnings in the NIPA consistent with thatused in the balance of payments accounts since 1978.• The treatment of international transactions has also been changed byusing a new procedure for estimating the prices of service exports andimports.• More detailed analysis of Federal purchases has allowed separate constantdollar estimates for both nondefense and defense purchases beginningin 1972.• The level of detail at which output is deflated has been increased.• Estimating procedures now allow a more complete differentiation betweendividend and interest income than was previously reported.The revisions have raised estimates of real GNP by about 3 Vz percent for1979, by about 2V2 percent for 1974, and by lesser amounts for earlier years.About one-third of the upward revision for the years 1977-79 was due to theconceptual change in the handling of foreign earnings. In addition, the revisionin the deflators has, on balance, reduced estimates of prices, thus raisingreal output. Finally, estimates of real nonresidential fixed investmenthave been substantially increased, especially since 1973. The ratio of real179