Because comprehensive survey data are not available to measure directly the ages and values of the net stock of fixed assets and consumer durable goods, BEA uses an indirect method to derive these estimates. The estimates of average ages and values of net stocks, as well as depreciation or consumption of fixed capital (CFC), are based on the perpetual inventory method (PIM). For each type of asset, the PIM calculates the net stock in each year as the cumulative value of gross investment through that year, less the cumulative value of CFC through that year, and less the effect of occasional disasters, such as hurricanes. The average age is derived as the weighted average of the ages of all depreciated investment remaining in the stock as of yearend. The weight for each age of investment is based on the proportion of its value as part of the total net stock.
Under the PIM, the average age of the net stock depends on the time patterns of past investment and the rate of depreciation. An asset will have a high average age when its net stock consists of a high proportion of older investment. High rates of depreciation imply that a low proportion of older investment remains in the current net stock. For most types of assets, BEA’s estimates of depreciation are based on geometric depreciation, in which a fixed percentage of the stock depreciates each year, so that a diminishing percentage of an original investment remains in the net stock over time.
In most cases, structures tend to have higher average ages, while equipment and intellectual property products tend to have lower average ages. For structures such as permanent site housing, average ages are relatively high because a significant proportion of investment occurred many years ago and because the rate of depreciation is relatively low, so old investment remains in the stock for a long time. For software, average ages are relatively low because much of the investment occurred more recently and because the rate of depreciation is relatively high, so old investment leaves the net stock quickly.
BEA produces estimates of both “current cost” and “historic cost” average ages. The current-cost estimates are based on a weighted average of current-cost (or replacement cost) estimates of past investment remaining in the stock, while the historic-cost estimates are based on a weighted average of historic costs (or book values) of past investment remaining in the stock. For permanent-site housing, for example, the current-cost average age is higher than the historic-cost average age because, as prices tend to rise over time, the current-cost estimates of older investment are higher than historic-cost estimates of older investment, and so older investment receives a higher weight in the current-cost estimates of average age.
BEA’s Fixed Assets Accounts can be found at http://www.bea.gov/iTable/index_FA.cfm. For more information about BEA’s depreciation rates, see http://www.bea.gov/national/pdf/fixed%20assets/BEA_depreciation_2013.pdf