GDP measurement issues

Graeme Walker Head of National Accounts

Productivity Puzzle Seminar: 16 October 2012

Outline

• Why is GDP revised?• How is it compiled?• How does this lead to revisions?• When might we expect revisions?

• Size of GDP revisions• Reference to the Productivity Puzzle

• Impact of Revisions

• Conclusions• Measurement issues• What’s next?

How GDP is compiled (1)

• Three approaches• Output, Expenditure and Income• Perfect statistical world – all equal

• Many sources• Monthly, Quarterly, Annual• Various timings• Monthly survey (IoP around 6 weeks)

• 44,000 questionnaires• Annual tax returns (15 months)

How GDP is compiled (2)

• Preliminary estimate (25 days)• Based exclusively on output, 44% data

• Second estimate (8 weeks)• Growth based on output, 83% data

• Quarterly National Accounts (13 weeks)• Based on output, 92% data• Revisions to previous periods

How GDP is compiled (3)

• Balanced supply and use• Framework for confronting differences• Levels not growths

• First balance after around 18 months• Blue Book 2012 balanced 2010

• Second balance is usually based on ‘final’ data except for methodological changes

Why is GDP revised?

• Output source data revised• Revised seasonal factors• Annual chain-linking changes weights• Supply and use balancing• New methods• New international frameworks

When might we see revisions?

• For 2010 and earlier, nothing before June 2013• Supply and Use balancing• Some methodological changes

• For 2011 and 2012, the Quarterly National Accounts releases in Dec 2012 and March 2013• New data but still based on output• 2011 balanced for the first time in Jun

2013

Size of GDP Revisions

• Article published today• Update of comprehensive analysis published in

December 2009• Normally, revisions are compared over 5 years• But look at 2 years, to cover downturn

• First estimate of GDP still unbiased and not significant

• Signs that revisions are getting a bit larger• Subsequent revisions are largely

methodological and cannot be predicted• Size of possible future revisions

GDP Revisions

Mean revisions between T and T + 24 months

Mea

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visi

ons

- P

er c

ent

grow

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GDP Revisions – Ignoring sign

Mean absolute revisions between T and T + 24 months

GDP level

GDP Level – Future revisions?

Conclusions

• GDP revisions remain unbiased and not significant

• But some signs they are becoming larger and so, monitoring will continue

• Even so, unlikely that future revisions to GDP could explain more than one percentage point of the productivity puzzle at most

Measurement issues for initial estimates of GDP

• Why might revisions be getting larger?• More difficult at ‘turning points’ or when growth is more variable

• Estimate based on deflated turnover• No short term estimate of intermediate consumption• Assumption that it moves in line with turnover• Deflators?

• Difficulty of measuring small businesses• Register of businesses based on VAT registrations and

employer tax records• Under-coverage adjustment for self employed not on business

register

• Difficulty measuring some sectors• Financial services• Construction

What’s next?

• BB 2013 – More methods improvements; full scope to be published later this year

• BB 2014 – New National Accounts framework (ESA10)

• Analyse revisions by reason rather than over time (feasibility)

• Continue to monitor revisions• GDP improvement plan

• Part of continuous improvement

Questions

Email: graeme.walker@ons.gov.uk