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

Historical perspective Some numbers 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 Many sources 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)

Preliminary estimate (25 days) 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

Quarterly National Accounts 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

Balanced supply and use 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

Preliminary to QNA growth 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 Absolute average revisions higher 0.4 p.p for period 1998 to 2007 0.7 p.p for period 2008 and 2009 Actual revisions now negative +0.2 p.p for period 1998 to 2007 -0.2 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: graeme.walker@ons.gov.uk http://www.ons.gov.uk/ons/rel/naa1-rd/national-accounts-articles/why-is-gdp-revised-/index.html