Why is GDP revised? Andrew Walton Assistant Deputy Director

1. Why is GDP revised? Andrew WaltonAssistant Deputy Director National Accounts Coordination Division 2 October 2013

2. Outline • Revisions in general • How GDP is compiled • GDP revisions • Some numbers • Levels • Growths • Nominal GDP revisions • 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 approaches • 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 3 approaches • 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 • 112 industries and products • First balance after around 18 months • BB13 balanced 2011 • 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. 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

21. The Recession: Q1 2008 to Q3 2009

22. The Recession: Q1 2008 to Q3 2009

23. Revisions to Growth • Preliminary to QNA growth • Last 26 periods • Average -0.01 p.p: not biased • Absolute average 0.12 p.p • 7 times unchanged;12 times by +/-0.1 p.p, 4 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

24. 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 to 2010 • Absolute average revisions higher • 0.4 p.p for period 1998 to 2007 • 0.5 p.p for period 2008 to 2010 • Impact of methodological changes • Continue to monitor closely

25. Nominal GDP • The poor relative in the media • Possible MPC spotlight • ONS setting up a review of methodology • Revisions performance key • Work in early stages

27. Nominal Revisions at 2nd estimate

28. CVM revisions on the same basis

29. CVM revisions at 1st balanced BB

30. Nominal GDP at 1st balanced BB

31. CVM GDP revisions across vintages

32. Nominal GDP revs across vintages

33. Total updates - CVM

34. Total updates – Nominal GDP

35. Conclusions • Revisions between Preliminary and QNA for real GDP 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 and recovery • Nominal quarterly GDP revisions being used as a guide to possible improvements

36. What’s next? • BB 2014 – New National Accounts framework (ESA10) • Also a range of Gross National Income (GNI) reservations to clear • Analyse revisions by reason rather than over time • Displaying uncertainty in estimates • Splitting data revisions from methodological revisions • Continue to monitor revisions

37. 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 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 Why is GDP revised article from June 2013 http://www.ons.gov.uk/ons/guide-method/method-quality/specific/economy/national-accounts/articles/2011-present/why-is-gdp-revised-/updated-analysis--why-is-gdp-revised-.pdf

38. Questions • Email: andrew.walton@ons.gsi.gov.uk