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Chapter 7 Annual benchmarks and quarterly estimates

Australian System of National Accounts: Concepts, Sources and Methods
Reference period
2020-21 financial year

Introduction

7.1    Input-Output (I-O) tables provide a means of undertaking detailed analysis of the process of production and the use of goods and services (i.e. products), and of the income generated in that production. The ASNA includes symmetric I-O tables as well as closely related Supply and Use (S-U) tables. Both types of tables are often referred to as I-O tables.

7.2    The integration of I-O in the overall system of national accounts is an important feature of the ASNA. Its role in the ASNA is primarily related to the goods and services accounts and to the shortened sequence of accounts for industries. Complementing the full sequence of accounts for institutional sectors, which cover all kinds of accounts in the ASNA, are the S-U tables, and subsequently the symmetric I-O tables. These serve to provide a more detailed basis for analysing industries and products through a breakdown of the production account, and the generation of income account and the goods and services account, leading to the symmetric I-O table. 'Symmetric' means that the same classifications or units (e.g. the same groups of products) are used in both rows and columns. When the number of rows of products and columns of industries in S-U tables happens to be equal, they are referred to as square (not symmetric) S-U tables. However, S-U tables are most often rectangular (having more products than industries).

7.3    The I-O and S-U tables serve two purposes: statistical and analytical. They provide a framework for checking the consistency of statistics on flows of goods and services obtained from quite different kinds of statistical sources - industrial surveys, household expenditure surveys, investment surveys, foreign trade statistics, etc. The ASNA, and the I-O tables in particular, serve as a coordinating framework for economic statistics, both conceptually for ensuring the consistency of the definitions and classifications used and as an accounting framework for ensuring the numerical consistency of data drawn from different sources. The I-O framework is also appropriate for calculating much of the economic data contained in the national accounts and detecting weaknesses. This is particularly important for the decomposition of the values of flows of goods and services into prices and volumes for the calculation of an integrated set of price and volume measures. As an analytical tool, I-O data are conveniently integrated into macroeconomic models in order to analyse the link between final demand and industrial output levels. I-O analysis also serves a number of other analytical purposes or uses.

7.4    A fundamental role is played in the ASNA by S-U tables. They show, for the economy as a whole and for groups of products, the total resources in terms of domestic output and imports, and the uses of goods and services in terms of intermediate consumption, final consumption, gross capital formation and exports. They also provide information on the generation of income from production.

7.5    They provide an accounting framework within which the commodity flow method of compiling national accounts - in which the total supplies and uses of individual types of commodities have to be balanced with each other - can be systematically exploited, resulting in improvements in the overall accuracy of the national accounts.

7.6    Commencing with 1994-95, the annual GDP account has been compiled using the product flow method. In other words, the compilation of the GDP account is fully integrated with the compilation of the I-O tables.

7.7    Conceptually, the GDP account and the I-O tables are fully integrated and consistent. The GDP account provides three approaches to measuring GDP: summing the incomes generated by production; summing final expenditures on commodities sold in Australia plus exports less imports of goods and services; and summing the value added at each stage of production. I-O tables are essentially a further disaggregation of the same three approaches. Whereas intermediate consumption is netted out from the GDP account, I-O tables bring these inter-industry flows of commodities back into focus, thereby providing a more developed articulation of the process of economic production, and the structure and interrelationships of industries. An important feature of the I-O tables is that they are fully balanced matrices which allow for the confrontation of data and the resolution of differences at a detailed level.

7.8    The strategy adopted by the ABS in relation to the compilation of I-O tables involves a two stage process whereby a series of S-U tables, in both current prices and in the prices of the previous year, are compiled annually. These tables constitute benchmarks for the annual and quarterly GDP accounts. The analytic I-O tables are compiled as the second stage of this process when the S-U tables for a particular year are deemed to be final.

7.9   This approach to compiling the GDP account allows for the annual and quarterly current price GDP accounts to be benchmarked to balanced S-U tables. This applies for all years from 1994-95 except the latest year and the latest two years with the release of the June quarter national accounts. The S-U tables for each year are effectively compiled three times: first preliminary tables, second preliminary tables, and final tables. The GDP account is benchmarked at each of these three stages. The re-benchmarked GDP account is published first in the September quarter issues of the ASNA. This strategy means that the quarterly accounts will never be projected more than eight quarters from a balanced set of annual accounts. Apart from the most recent year and the June quarter national accounts (for which a balanced estimate is not available), there will be only one measure of annual GDP, and consequently no statistical discrepancies in annual terms.

7.10    Estimates for the latest financial year are obtained by aggregation of the quarterly estimates, which are obtained in turn by extrapolating from the latest annual benchmark estimates using the most appropriate indicators. In some cases these are basically the same sources as those used in constructing the annual S-U tables (e.g. private GFCF on new dwellings is mainly based on data for the value of work done from the Building Activity Survey). In other cases, the indicators used are closely related to the aggregate being estimated (e.g. quarterly gross operating surplus of non-financial corporations is mainly based on data from the Quarterly Business Indicator Survey). In a few cases the indicators used provide only a general indication of movements in the aggregate being estimated.

7.11    As explained previously, the compilation of balanced S-U tables requires three iterations. The sequence of S-U and I-O tables is scheduled for completion according to the following timetable:

1st preliminaryend of year t + 16 months
2nd preliminaryend of year t + 28 months
Finalend of year t + 40 months
Input-output tables (based on 1st preliminary S-U tables)end of year t + 23 months.

7.12    The major implication of this strategy is that the measures of current price annual GDP and its components are consistent between the S-U tables, the I-O tables and the GDP account, at the time that the I-O tables are compiled. It should be noted that the ABS does not revise I-O tables once they have been published, whereas the S-U tables and the GDP account may be revised for all periods whenever an historical revision is undertaken, and when the final S-U tables are produced. Income and expenditure-based GDP are also equal within the GDP account for all years from 1994-95 in current-price annual terms, except for the latest year, and the June quarter national accounts.

7.13    The volume movements derived from these tables are used to benchmark the volume movements published in the annual and quarterly GDP accounts. Volume movements in respect of the gross value added for industries compiled in this way are considered to be markedly superior to those produced by previous estimation methods.

7.14    The preferred method for estimating the volume change in an industry's value added is through double deflation. This means that value added, in the prices of the previous year (or some other base period), is obtained by deflating outputs and intermediate inputs separately. The value-added estimate for the industry is computed as the difference between these output and input measures.

7.15    The double deflation method cannot be used for all industries. The method applied to remove price effects depends on the robustness of information available. The double deflation method demands a high level of reliability in the current price production accounts, and in the price or quantity data used for deflation. This technique introduces the possibility of numerous and compounding measurement errors in situations where data may not meet the required standards. Gross value added is the difference between two large aggregates, so that a small error in one can significantly affect gross value added.

7.16    It is common for indicator series to estimate the volume movements of value added using only one component, either output or input, because of the problems associated in trying to estimate volumes using double deflation. This is referred to as the single indicator method.

7.17    In ASNA, the single indicator method is applied to estimate the quarterly volume measures for most industries and is based on output indicators. The sum of the four quarters’ volume estimates is used to confront the annual volume estimates, which are mostly derived using the double deflation method.

7.18    It is also necessary to consider the appropriate way to estimate volumes for non-market producer activity as output is valued on the basis of the inputs. The 2008 SNA recommends three possible methods for compiling volume estimates or the output of non-market producers:

  1. derive a proxy output price index;
  2. output volume method; and
  3. input volume method.

The second approach is recommended for non-market producers providing individual services and has been implemented for the education and health industries in the ASNA. The third approach is recommended for non-market producers providing collective services (such as defence). To date, this approach has not been adopted in ASNA.