Why is GDP revised? Graeme Walker Head of National Accounts Royal Statistical Society: 30 May 2012.

Why is GDP revised?

Graeme Walker Head of National Accounts

Royal Statistical Society: 30 May 2012

Outline

• Revisions in general• How GDP is compiled• GDP revisions • Historical perspective• Some numbers

• Levels• Growths

• Conclusions• What’s next?

Revisions to economic series

• Revisions are a fact of life for most economic series

• Or else:• The first estimate is delayed• Later information is ignored even when

it tells a different story

• Balance between accuracy and timeliness

How GDP is compiled (1)

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

• Many sources• Monthly, Quarterly, Annual• Various timings• Monthly turnover (IoP around 6 weeks)• Annual tax returns (15 months)

How GDP is compiled (2)

• Preliminary estimate (25 days)• Accuracy and timeliness trade-off• One of the fastest in the world• Based exclusively on output, 44% data

• Second estimate (8 weeks)• Growth based on output, 83% data• Publish all measures• Some provisional expenditure sources• Limited direct income information• Use of quarterly alignment adjustments

How GDP is compiled (3)

• Quarterly National Accounts • 13 weeks• Based on output, 92% data• Similar to second estimate• Expenditure components more firm • Revisions to previous periods but not for

SU balanced years

• When 4 quarters are published• Seasonally adjusted annual constrained

to equal unadjusted annual

How GDP is compiled (4)

• Balanced supply and use• Framework for confronting differences• Levels not growths• 110 industries and products

• First balance after around 18 months• BB12 balances 2010• Not all benchmarks always received

• Second balance is usually “final” except for methodological changes

Why is GDP revised?

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

Historical perspective

• Before 1989 – 4 measures published• Output, Expenditure and Income• Average (unweighted)• First estimate (11 weeks)• Poor service sector coverage• Construction

• q1 87 revision

• No attempt to balance the measures

1988 Autumn Statement

• Difficult to assess how economy has been performing in first half of 1988

Historical perspective

• Pickford review led to current methodology

• Improved short term surveys• Balanced measure for years up to t-2• Chain linking in 2003• Avoided major revisions with 5 year

rebasing

Some numbers: Revisions to GDP levels

• Balancing supply and use fixes annual level not quarterly growth

• Use quarterly path from output anchored to SUT levels

• Generally small apart from methods changes

The Recession: Q1 2008 to Q3 2009

Revisions to Growth

• Preliminary to QNA growth• Last 20 periods• Average -0.02 p.p: not biased• Absolute average 0.13 p.p• 5 times unchanged;10 times by 0.1 p.p• 3 times by 0.2 p.p• Q4 2009 revised by 0.3 p.p• Q1 2009 revised by -0.5 p.p (Blue Book)

• No benefit in delaying preliminary estimate from 25 days to 13 weeks

QNA to Latest

• Evidence from the recession incomplete• No evidence of bias yet• Actual revisions now negative

• +0.2 p.p for period 1998 to 2007• -0.2 p.p for period 2008 and 2009

• Absolute average revisions higher• 0.4 p.p for period 1998 to 2007• 0.7 p.p for period 2008 and 2009

• Impact of methodological changes• Continue to monitor closely

Case study: Q3 2009

• Published in Oct 09 as a fall of 0.4%• Revised to -0.3% in Nov 09

• Services sector output• -0.2% in Dec 09

• Quarterly construction data• Back to -0.3% in Feb 10

• Finance and Business services• +0.2% in BB 2011, revision of 0.5 p.p

• 0.2 p.p from new sources and SUT• 0.3 p.p from changing deflation methods

A reminder

Conclusions

• Revisions between Preliminary and QNA continue to be small and unbiased

• Subsequent revisions have been higher since 2008 but still unbiased

• Partly explained by BB11 methods changes• Impact of Supply and Use• ONS monitoring methods through the

recession• BB 2012 will provide more evidence

What’s next?

• BB 2012 – Improvements to the treatment of insurance in line with international best practice

• BB 2013 – More methods improvements; Whole of Government Accounts likely; 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

References

Revisions policy

http://www.ons.gov.uk/ons/guide-method/method-quality/specific/economy/revisions/economic-statistics/national-accounts-revisions-policy.pdf

Detail of Supply and Use tables structure

http://www.ons.gov.uk/ons/guide-method/method-quality/specific/economy/input-output/input-output-supply-and-use-tables-structure-overview.pdf

Whole of Government Accounts

http://www.ons.gov.uk/ons/rel/psa/public-sector-finances/psf-and-wga/comparison-of-public-sector-finance-measures.pdf

Revisions triangles

http://www.ons.gov.uk/ons/publications/re-reference-tables.html?edition=tcm%3A77-240821

Improvements to the measurement of Insurance Services

http://www.ons.gov.uk/ons/guide-method/method-quality/specific/economy/national-accounts/methodology-and-articles/2011-present/blue-book-2012-insurance-services/index.html

Various National Accounts articles, including "National Accounts: A short guide"

http://www.ons.gov.uk/ons/guide-method/method-quality/specific/economy/national-accounts/methodology-and-articles/2011-present/index.html

Questions

Email: [email protected]

http://www.ons.gov.uk/ons/rel/naa1-rd/national-accounts-articles/why-is-gdp-revised-/index.html