Gross Domestic Product:

No Evidence of Manipulation in First Quarter 1991 Estimates

GGD-93-58: Published: Mar 10, 1993. Publicly Released: Mar 26, 1993.

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Pursuant to a congressional request, GAO reviewed whether the Bureau of Economic Analysis (BEA) inflated first quarter 1991 gross domestic product estimates and failed to incorporate downward revisions in employment data to mask the true extent of the economic downturn.

GAO found that: (1) there was no evidence that BEA manipulated first quarter 1991 gross domestic product (GDP) or personal income statistics for political purposes; (2) BEA followed its standards in incorporating employment data in personal income statistics and deviated from its standards only when required by reasonable technical judgments; (2) BEA had many procedural and organizational safeguards that helped ensure the integrity of BEA data against political manipulation; (3) BEA based its 1991 personal income estimates on employment data rather than on GDP data, which resulted in a downward revision in employment data, and a net first quarter growth in GDP; (4) the estimated growth in state personal income for the first quarter of 1991 was less affected by revised employment data because BEA used employment and related wage data in different ways and at different times in state personal income estimates; and (5) improvements to BEA data integrity included increased documentation and explanation of its data and procedures, public responses to misconduct allegations, and mechanisms for outside expert reviews and comment on its procedures.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: Discussions with a broad range of congressional staff suggest that Congress now is more interested in a broader assessment of the federal statistical system, including the diffusion of responsibility among 72 agencies. The administration is also considering consolidating these agencies as part of its effort to reengineer government. Since BEA's role and mission will probably be reassessed as part of this process, this broader review will provide a more appropriate forum to consider actions that Congress may take to ensure the objectivity and integrity of BEA's data.

    Matter: Congress may wish to consider requesting that BEA testify at regular intervals when it releases major national economic statistics.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: BEA has notified GAO, JEC, and its appropriation committee under separate letters that: (1) it is willing to testify more often; (2) it is documenting more fully several key procedures; and (3) it is creating a strategy to be more proactive with questions from the press and other users, especially in terms of allegations of manipulation. Fulfilling this recommendation in May 1993, the Director of BEA forwarded to the Secretary of Commerce "A Strategy to Improve the Perceived Integrity of BEA's Estimates." Following this strategy, BEA is communicating more clearly and widely about technical factors affecting its estimate through a combination of new technical notes, testimony, briefings, and availability of the Director to talk with the media. BEA is also attempting to publicize better the processes and safeguards that protect the integrity of its estimates and BEA is responding aggressively to public questions about the integrity of its estimates.

    Recommendation: The Secretary of Commerce should instruct the head of BEA to formulate a strategy to provide better explanation and documentation of BEA procedures to general users and assure Congress and the general public of the integrity and credibility of BEA estimates. This strategy should include a review of the principles and procedures for documenting and explaining its methodology and calculations, responding to allegations of political manipulation, and creating additional mechanisms for outside expert review and comment.

    Agency Affected: Department of Commerce

 

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