Data in NIPA

[max gr]

A question for those familiar with the BEA’s national income and product accounts (NIPA) database:

Where can I find the data for corporate profits, which are imputed specifically to the ‘production’ of new assets (‘capital goods’/’fixed capital’)?
As opposed to corporate profits related to the sale of ‘non-durable’/’consumption’ commodities.

Any assistance would be much appreciated.

Topic

[Jonathan Nitzan]

Conceputally, NIPA profits are attributed to ‘industries’, so ostensibly you can select the sectors that produce ‘capital goods’ and aggregate their profits.

Practically, though, NIPA profits are derived from corporate reports, and since many corporations today operate in more than one sector (and often in many), it is difficult if not impossible to know what profits come from what sector.

As far as I know, the national accounting rule of thumb is to attribute the company’s entire profit to the sector that generates most of its sales, but if this largest sector accounts for only 20% or 30% of the corporation’s operations, the results can be very misleading.

[max gr]

An added complication might arise because the same products, ‘produced’ by the same ‘industries’, can be recorded differently depending on the sector to whom they are sold (e.g. coffee machines sold to corporations will be labeled as capital goods, but when sold to households they’ll be labeled as consumers goods).

If I’m not mistaken, this classification (and aggregation) is dependent on corporations’ reports of capital formation, and not on attributing the corporation’s output to a specific industry.

So even if corporations were ‘pure’ (with regards to industry), it would still be problematic to reconcile industrial imputations and domestic product accounts of recorded capital formation.

Having said that, taking those classifications at face value, and looking at it from the ‘expenditure’ side: is it possible, in principle, to impute shares of income (profits/wages/etc.) to ‘gross investment’/’capital formation’ – based on aggregated data from corporations individual reports? Without recourse to industrial classification.

• This reply was modified 2 years ago by max gr.

[Scot Griffin]

Here is a link to the BEA’s NIPA Handbook explaining what NIPA’s Corporate Profits data reflect.  I agree with Jonathan that NIPA does not disaggregate profits in the way you would like.

Also, accounting rules allow things like software to be capitalized, i.e., to be treated as capital goods or fixed capital, and depreciated over time.  This is why I think of fixed capital as a “stupid accounting trick” that delays certain expenses from hitting the income statement, smoothing profits and losses over time.  It is a fiction born out of fairness, though.  A manufacturer cannot make or sell any products until it builds a factory.  Accounting rules allow the manufacturer to account for the expense of building the factor on its cash flow statement while deferring the recognition of that expense on the income statement on a pro rata basis over the useful life of the factory, which is usually 20-30 years.  Capital expenses for things like software may have a useful life (reflected in the depreciation schedule) of only 1-2 years.

 

[Jonathan Nitzan]

In his interesting 2010 book, Misplaced Generosity. Extraordinary Profits in Alberta’s Oil and Gas Industry (Edmonton, Alberta: Parkland Institute, University of Alberta), Reagan Boychuk offers an account of Alberta’s oil and gas revenues, costs and profit, plus imputations of ‘normal’ and ‘excess profit’. (Twitter thread)

The computations/imputations are built from the bottom up – i.e., they are based on estimates of the industry’s output, average oil/gas selling prices and investment and production cost, so, on the face of it, they reflect the business performance of Alberta’s oil and gas industry — and nothing else.

But here is a question: output levels are collected at the provincial levels, as are selling prices (I assume). But capital and operating costs probably come from the companies themselves, and since these companies are often large transnationals rather than Albertan only, it is hard to know the extent to which their data reflect local operations ‘uncontaminated’ by transfer pricing.

[max gr]

Don’t know about Boychuk’s book, but in the oil&gas business it is (sometimes) possible to find costs per project (per field in the upstream industry). They’re published in corporate reports as projects’ cashflows, and/or cost per unit of oil/gas extracted. So it can be done also from the costs side, bottom-up, if aggregated geographically.

[Author]

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