Output indicator method in the national accounts

Released
30/10/2020

Gross value added by industry

Gross Domestic Product (GDP) is based on the concept of Gross Value Added (GVA), which is the value of gross output minus intermediate consumption. GVA estimates enable analysis of industry contributions to the economy.

Supply-Use benchmarks

The ABS annually compile and publish a set of Supply-Use tables for the Australian Economy. Supply-Use tables are essential in the Australian System of National Accounts, as they ensure GDP is balanced for all three approaches (production, expenditure and income), and provide the annual benchmarks to compile high quality quarterly estimates.

Supply-Use tables reconcile the supply of products from domestic and foreign producers available for use in the Australian economy, with the use of these products, either as intermediate inputs in domestic production, or as final use. This framework allows for the accurate calculation of gross output, intermediate consumption and GVA by industry.

These tables are compiled using detailed input data obtained through surveys and administrative sources, such as the ABS Economic Activity Survey, audited government finance statistics, and the most up to date international trade data. The detailed nature of this data means that it is not available at the time the quarterly national accounts are complied.

Supply-Use tables provide annual benchmarks for GVA by industry, which are then used to compile quarterly estimates. Annual benchmarks improve the quality of GVA by industry estimates in the national accounts as they incorporate the most recent gross output and intermediate use information available.

Output indicators in the National Accounts

The quarterly national accounts are compiled using quarterly indicators, which utilise the best data available at the time of compilation. Limited data availability means comprehensive estimates through the Supply-Use framework cannot be achieved quarterly. Quarterly estimates are derived by interpolating and extrapolating annual benchmarks using quarterly indicators.

The output indicator method is used to compile quarterly industry GVA in volume terms. A key assumption, which underpins the output indicator method is that gross output, intermediate consumption, and GVA grow or decline at the same rate.

That is,

\(% MathType!MTEF!2!1!+- % feaahqart1ev3aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn % hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr % 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq-Jc9 % vqaqpepm0xbba9pwe9Q8fs0-yqaqpepae9pg0FirpepeKkFr0xfr-x % fr-xb9adbaqaaeGaciGaaiaabeqaamaabaabaaGcbaGaaiyjaiabfs % 5aejaad+eacaWG1bGaamiDaiaadchacaWG1bGaamiDamaaBaaaleaa % caWGPbGaamOBaiaadsgacaWG1bGaam4CaiaadshacaWGYbGaamyEai % aayIW7caWGybaabeaakiabg2da9iaacwcacqqHuoarcaWGjbGaamOB % aiaadshacaWGLbGaamOCaiaad2gacaWGLbGaamizaiaadMgacaWGHb % GaamiDaiaadwgacaaMe8Uaam4yaiaad+gacaWGUbGaam4Caiaadwha % caWGTbGaamiCaiaadshacaWGPbGaam4Baiaad6gadaWgaaWcbaGaam % yAaiaad6gacaWGKbGaamyDaiaadohacaWG0bGaamOCaiaadMhacaaM % i8UaamiwaaqabaGccqGH9aqpcaGGLaGaeuiLdqKaam4raiaadAfaca % WGbbWaaSbaaSqaaiaadMgacaWGUbGaamizaiaadwhacaWGZbGaamiD % aiaadkhacaWG5bGaaGjcVlaadIfaaeqaaaaa!7C42! \% \Delta Outpu{t_{industry{\kern 1pt} X}} = \% \Delta Intermediate\;consumptio{n_{industry{\kern 1pt} X}} = \% \Delta GV{A_{industry{\kern 1pt} X}}\)

And output is proxied by sales growth,

\(% MathType!MTEF!2!1!+- % feaahqart1ev3aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn % hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr % 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq-Jc9 % vqaqpepm0xbba9pwe9Q8fs0-yqaqpepae9pg0FirpepeKkFr0xfr-x % fr-xb9adbaqaaeGaciGaaiaabeqaamaabaabaaGcbaGaaiyjaiabfs % 5aejaad+eacaWG1bGaamiDaiaadchacaWG1bGaamiDamaaBaaaleaa % caWGPbGaamOBaiaadsgacaWG1bGaam4CaiaadshacaWGYbGaamyEai % aayIW7caWGybaabeaakiabg2da9iaacwcacqqHuoarcaWGtbGaamyy % aiaadYgacaWGLbGaam4CamaaBaaaleaacaWGPbGaamOBaiaadsgaca % WG1bGaam4CaiaadshacaWGYbGaamyEaiaayIW7caWGybaabeaaaaa!59E9! \% \Delta Outpu{t_{industry{\kern 1pt} X}} = \% \Delta Sale{s_{industry{\kern 1pt} X}}\)

Therefore,

\(% MathType!MTEF!2!1!+- % feaahqart1ev3aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn % hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr % 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq-Jc9 % vqaqpepm0xbba9pwe9Q8fs0-yqaqpepae9pg0FirpepeKkFr0xfr-x % fr-xb9adbaqaaeGaciGaaiaabeqaamaabaabaaGcbaGaaiyjaiabfs % 5aejaadEeacaWGwbGaamyqamaaBaaaleaacaWGPbGaamOBaiaadsga % caWG1bGaam4CaiaadshacaWGYbGaamyEaiaayIW7caWGybaabeaaki % abg2da9iaacwcacqqHuoarcaWGtbGaamyyaiaadYgacaWGLbGaam4C % amaaBaaaleaacaWGPbGaamOBaiaadsgacaWG1bGaam4Caiaadshaca % WGYbGaamyEaiaayIW7caWGybaabeaaaaa!56A7! \% \Delta GV{A_{industry{\kern 1pt} X}} = \% \Delta Sale{s_{industry{\kern 1pt} X}}\)

The output indicator method is applied to measure quarterly GVA for all industries with the exception of Agriculture, Forestry and Fishing and Public Administration and Safety. See National Accounts: Concepts, Sources and Methods for more information on National Accounts compilation methods.

Quality assessment of the output indicator method during economic disruptions

While the output indicator approach usually provides reliable estimates of quarterly GVA, in times of economic disruption underlying assumptions require assessment to ensure quality estimates.

It was expected that the COVID-19 pandemic could cause a material shift in the relationship between output and intermediate consumption for certain industries. For industries where the output indicator method is used, there were concerns that the approach may not produce accurate industry GVA estimates. To detect this, additional quality assurance methods were put in place and alternative data sources were used to identify potential divergences between gross output and intermediate consumption.   

In the June quarter National Accounts, industry GVA estimates were assessed using sales and other operating expenses from the ABS Quarterly Business Indicator Survey as well as results from the Business impact of COVID-19 survey. Following this assessment, it was determined no interventions were required in the June quarter. Figure 1 outlines the decision tree for identifying industries with divergences in gross output and intermediate consumption. If an intervention is required in the future, additional information will be provided.

Figure 1 - Decision tree for identifying divergences in gross output and intermediate consumption

An image of a decision tree for identifying divergences in gross output and intermediate consumption

Figure 1 - Decision tree for identifying divergences in gross output and intermediate consumption

A flow chart describing the step-by-step process of identifying industries with divergences in gross output and intermediate consumption. For a particular industry, the process involves identifying the method used to measure industry GVA, ascertaining whether intermediate consumption is a significant contributor to annual GVA, and using expectations and alternative data sources to assess the relationship between output and intermediate consumption.

The ABS will continue to apply these additional quality checks and processes in upcoming quarters.