Why is GDP revised? Graeme Walker Head of National Accounts

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

2. Outline • Revisions in general • How GDP is compiled • GDP revisions • Historical perspective • Some numbers • Levels • Growths • Conclusions • What’s next?

3. 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

4. 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)

5. 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

6. 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

7. 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

8. 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

9. 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

10. 1988 Autumn Statement • Difficult to assess how economy has been performing in first half of 1988

11. 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

12. 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

14. The Recession: Q1 2008 to Q3 2009

15. 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

16. 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

17. 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

18. A reminder

19. 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

20. 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

21. 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

22. 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