INTRODUCTORY AND DEFINITIONAL INFORMATION
This file provides introductory and definitional information about
the
BEA methodology for estimating capital stocks and depreciation, which
will be
fully described in the forthcoming report FIXED REPRODUCIBLE TANGIBLE
WEALTH
IN THE UNITED STATES, 1925-94 (FRTW). The BEA methodology is described
in two
articles that are included on this CD-ROM. The first, "Improved
Estimates of
Fixed Reproducible Tangible Wealth, 1929-95" by Arnold J. Katz and Shelby
W.
Herman, appeared in the May 1997 issue of the SURVEY OF CURRENT
BUSINESS. It
describes the BEA methodology and how it differs from the one that BEA
used in
prior years. (The tables of net stocks that accompanied the original
article,
tables 1-15, are not reproduced here as the tables presented in this CDROM
contain a revised and more comprehensive version of these estimates.)
The
second, "The Measurement of Depreciation in the U.S. National Income and
Product Accounts" by Barbara M. Fraumeni, appeared in the July 1997 issue
of
the Survey and describes the basis for BEA's methodology for
depreciation.
In addition, an explanation is provided below of the key terms that
appear in the tables of this CD-ROM. Finally, two tables that provide
additional information on the methodology that will appear in the
forthcoming
volume FRTW, are included in this file: Table A, which lists the data
sources
for the estimates of new nonresidential private investment by industry
and
Table B, which presents detailed depreciation schedules for autos,
computers
and computer peripherals (depreciation rates for other goods are
presented in
Table 3 of the Fraumeni article).
EXPLANATION OF TERMS
The following explanation of terms is presented in three sections:
(1)
wealth estimates; (2) gross investment, depreciation, net stock, and
average
age of net stock, and (3) valuation of the estimates.
WEALTH ESTIMATES
Fixed reproducible tangible wealth is defined by BEA to consist of
fixed
private capital, fixed government capital, and durable goods owned by
consumers. Fixed private capital consists of equipment and structures,
including owner-occupied housing, located in the United States that are
owned
by private business or nonprofit institutions. Fixed government capital
consists of equipment and structures owned by Federal Government and
State and
local government agencies, including government enterprises, located in
the
United States (except in the case of national defense equipment, for
which
coverage is worldwide)./1/ Durable goods owned by consumers are goods
purchased by households for their nonbusiness use with a life expectancy
of at
least three years./2/ Capital stock is defined by BEA to consist of
fixed
private capital and fixed government capital.
All of the wealth estimates are classified by type of asset. In
addition, estimates for fixed private capital are further classified by
legal
form of organization. Corporate business consists of all entities
required to
file Federal corporate income tax returns (IRS Form 1120 series),
including
mutual financial institutions and cooperatives subject to Federal income
tax,
private noninsured pension funds, nonprofit organizations that primarily
serve
business, Federal Reserve banks, and Federally sponsored credit agencies.
Sole proprietorships consists of all entities that would be required to
file
IRS Schedule C (Profits or Loss From Business) or Schedule F (Farm Income
and
Expenses) if the proprietor met the filing requirements and owneroccupied
farm housing. Partnerships consists of all entities required to file
Federal
partnership income tax returns, IRS Form 1065 (U.S. Partnership Return of
Income). Other private business consists of the following: All entities
that
would be required to report rental and royalty income on the individual
income
tax return in IRS Schedule E (Supplemental Income and Loss) if the
individual
met the filing requirements; tax-exempt cooperatives; owner-occupied
nonfarm
housing; and buildings and equipment owned and used by nonprofit
institutions
that primarily serve individuals.
Estimates for fixed private capital are also presented by industry
based
on the 1987 SIC./3/ Industry data are presented on an "establishment"
basis;
establishments, as defined for the purposes of the SIC, are economic
units,
generally at a single physical location, where business is conducted or
where
services or industrial operations are performed. In addition, the
corporate
business stock estimates are presented with the following special
groupings of
SIC industries. Financial industries consists of the following SIC
industries: Depository institutions; nondepository institutions;
security and
commodity brokers; insurance carriers; regulated investment companies;
small
business investment companies; and real estate investment trusts./4/
Nonfinancial industries consists of all other private industries.
Estimates for residential capital are also classified by "tenure
group,"- that is, tenant-occupied residential capital consists of rental
housing,
including all government-owned residential capital. Owner-occupied
residential capital consists of housing occupied by private owners.
In the distributions of capital by type of owner, legal form of
organization, and industry presented here, capital assets are classified
on an
ownership basis; that is, capital assets held under operating leases are
recorded in the stock of the lessor while capital assets held under
capital
leases are recorded in the stock of the lessee. The ownership basis is
used
in order to be consistent with the NIPA's and because the data necessary
to
compute capital stock estimates on a use basis are not available.
Estimates for the Federal Government are further classified by
national
defense and nondefense. National defense fixed capital consists of
equipment
and structures owned by the U.S. Department of Defense, with the
following
exceptions: Family housing for the armed forces, civil works
construction by
the Army Corps of Engineers, industrial facilities, military hospitals,
and
the Soldiers' and Airmen's Home. Nondefense fixed capital consists of
all
other fixed capital owned by the Federal Government.
GROSS INVESTMENT, DEPRECIATION, NET STOCK, AND AVERAGE AGE OF NET
STOCK
Gross investment is the value of purchases of new fixed capital
assets.
For a given type of owner, it also includes net purchases of used assets
from
other types of owners (private business, governments, households, and
nonresidents). Data are not available to adjust for transfers of used
assets
among industries or among legal forms of organization. Depreciation is
the
decline in value due to wear and tear, obsolescence, accidental damage,
and
aging./5/ For the estimates presented here, most assets are assumed to
have
depreciation patterns that decline geometrically over time so that, for a
given year, the depreciation charges on existing assets are obtained by
multiplying the prior year's charge by one minus the annual depreciation
rate.
Net stock is the value of fixed reproducible tangible wealth adjusted for
depreciation. With the perpetual inventory method that is used to derive
the
estimates presented here, the net stock in the historical-cost valuation
and
(at the individual asset) in the real-cost valuation, which are described
below, is calculated as the cumulative value of past gross investment
less the
cumulative value of past depreciation./6/ Net stock in current-cost
valuation
is the value of the items in the real-cost net stock measured in the
prices of
the current yearend./7/ Average age of net stock for a given yearend is
a
weighted average of the ages of all investment in the stock at that
yearend,
with the weight for each age based on its value in the net stock.
VALUATION OF THE ESTIMATES
Historical-cost valuation measures the value of fixed assets in the
prices of the periods in which the assets were purchased new. Real-cost
valuation measures the value of these assets after the effects of price
change
have been removed. For this valuation, estimates for aggregate series
are
presented as chain-type quantity indexes, with 1992 equal to 100. These
indexes are computed using annual-weighted Fisher type indexes to obtain
year-to-year growth rates, which are chained together to obtain
cumulative
growth rates. Estimates for selected higher-level aggregates are also
presented in chained (1992) dollars./8/ Current-cost valuation measures
the
value of these assets in the prices of the given period, which are
yearends
for net stocks and annual averages for depreciation./9/ The estimates of
private net stocks and depreciation presented here are computed in
historicalcost, real-cost, and current-cost valuations, using investment data in
historical-cost and real-cost valuations. The average ages of net stocks
are
presented only for the current-cost and historical-cost valuations.
Estimates
for government capital are presented on a similar basis except that
estimates
of net stocks and depreciation are not presented in a historical-cost
valuation.
----------------------------ENDNOTES:
/1/ Purchases of fixed assets by government were first treated by BEA as
investment in the national income and product accounts (NIPA's) in the
comprehensive NIPA revision released in January 1996. See Robert P.
Parker and Jack E. Triplett, "Preview of the Comprehensive Revision of
the NIPA's: Recognition of Government Investment and a New Methodology
for Calculating Depreciation," SURVEY OF CURRENT BUSINESS 75 (September
1995): 33-41.
/2/ For private business and government, equipment is defined as goods
with a
life expectancy of at least one year.
/3/ Executive Office of the President, Office of Management and Budget,
STANDARD INDUSTRIAL CLASSIFICATION MANUAL, 1987 (Washington, DC: U.S.
Government Printing Office, 1988).
/4/ Regulated investment companies, small business investment companies,
and
real estate investment trusts are included in the SIC classification
"holding
and other investment offices" and are not shown separately in the NIPA
tables
or in the estimates presented here.
/5/ BEA uses the terms depreciation and consumption of fixed capital
synonymously. For business, the estimates of depreciation that are
obtained
in calculating net stocks are also presented as part of the NIPA's (as
consumption of fixed capital). However, the estimates of government
consumption of fixed capital that appear in the NIPA's differ from the
estimates of depreciation of fixed tangible reproducible wealth owned by
government that appear in this CD-ROM as the NIPA estimates do not
include the
adjustments made to general government capital for natural disasters and
war
losses. (See Robert P. Parker and Jack E. Triplett, OP. CIT., p. 36.)
/6/ This assumes that all assets that are retired (or discarded) are
fully
depreciated, i.e., have a value of zero. If this is not the case (e.g.,
because of disaster damage or intersector transfers of used assets), then
the
value of the net stock must be adjusted.
/7/ The difference between gross and net stocks of an asset in currentcost
valuation is usually not equal to the sum of past depreciation charges on
that
asset in current-cost valuation because the difference between the two
stock
measures is a function of prices in only the current year while the past
depreciation charges are a function of prices in all years since the
asset was
purchased.
/8/ The detailed estimates presented in this CD-ROM are generally at the
deflation level, the lowest level of detail for which investment price
indexes
exist. Estimates presented at this level are equivalent to estimates
measured
in constant 1992 prices. However, a few of the detailed investment
series
within private producers' durable equipment are aggregated from the
deflation
level of detail; where the detailed components have different deflators,
the
estimates are measured in constant (1992) prices and differ slightly from
comparable estimates measured in chained (1992) dollars. For a
discussion of
the difference between chained dollar and constant price estimates, see
J.
Steven Landefeld and Robert P. Parker, "BEA's Chain Indexes, Time Series,
and
Measures of Long-Term Economic Growth," SURVEY OF CURRENT BUSINESS 77
(September 1996): 58-68.
/9/ Average annual price indexes are equal to 100 in the base period,
1992.
Thus, the 1992 values of real-cost and current-cost depreciation (and of
discards) are equal, because these are average annual values. The 1992
values
of real-cost and current-cost gross stocks (and of net stocks) are
usually not
equal, because these are yearend values and prices usually change during
the
year.