Latest Developments in the Canadian Economic Accounts
The 2005 to 2008 revisions to the Income and Expenditure Accounts
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Revised estimates of the Income and Expenditure Accounts (IEA) covering the period 2005 to 2008 have been released along with those for the first quarter of 2009. These revised estimates incorporate the most current source data and seasonal patterns.
The annual revision process is integrated within the Canadian System of National Accounts, with revised estimates of the National Income and Expenditure Accounts, Financial Flow Accounts, and Canada's Balance of International Payments,compiled and released together. For example, updated estimates of detailed financial transactions underlying gross domestic product (GDP) are harmonized with revised estimates of sector incomes and outlays. In addition, revised estimates of the National Balance Sheet Accounts, are released about two weeks later, based largely on the updated sources of financial and capital transactions as well as on estimates of capital gains/losses implicit in the stock estimates.
The integration of GDP estimates by component occurs through compiling Input-Output Tables in current prices for the first two years of the four year revision period. These data are released in the fall of each year when the full provincial Input-Output Accounts are completed. Corresponding revisions to the monthly estimates of real gross domestic product by industry are released in September. Industry-based estimates are integrated annually, at the time of the first quarter with the income and expenditure based measures of GDP. Revisions to the more recent two years of the four year revision cycle arise due to updated sub-annual and annual sources of information.
Statistical revisions are carried out regularly in the Canadian System of National Accounts in order to incorporate the most current information from censuses, annual surveys, taxation statistics, public accounts, etc. In principle, the revision schedule for the IEA is as follows: the first estimate for a given quarter is released approximately 60 days after the end of the reference quarter; this estimate is revised when estimates for subsequent quarters of the same calendar year are released; thereafter, the estimates are open for revision only once a year for the next four years, at the time of the release of the first quarter estimates. For example, the estimates for the first quarter of 2005 were first released in May 2005. The first revision to these estimates occurred when the second quarter estimates were released in August 2005, further revisions occurred when the third and fourth quarter 2005 estimates were released. These estimates were revised again in each of the next three years (2006, 2007, 2008), with the last of these revisions occurring with this release.
The policy of revising the estimates of previous years only once a year is adhered to throughout the System of National Accounts. The period open for revision, however, varies from one set of accounts to the other. Thus, the standard revision is four years in the Income and Expenditure Accounts and the Balance of Payments. The standard revision in the Input-Output Accounts covers one year—the first year of the four years of revision in the Income and Expenditure Accounts and the balance of payments statistics. The revision of the Financial Flow Accounts usually parallels that of the National Balance Sheet Accounts and may occasionally cover more than four years in order to harmonize the flows with the revised stocks.
Limited revisions are sometimes carried out for periods further back than four years and historical revisions are conducted periodically, roughly once every 10 to 15 years. Historical revisions provide an occasion to improve estimation methods, eliminate statistical breaks resulting from more limited revisions and introduce conceptual changes into the system. The most recent historical revision was completed in December 1997. Documentation related to this revision can be found at Historical revision of the National Economic and Financial Accounts: review.
Impact of the revisions on gross domestic product (GDP)
The current revisions to GDP result from the inclusion of the most current estimates from data sources, including survey results, administrative data and public accounts. Revised 2005 and preliminary 2006 Input-Output data are incorporated for the first two years of the four-year revision period. New benchmark information is incorporated for the more recent periods. Other series are revised due to applying existing or updated projectors to the new levels received from the Input-Output Accounts. Additional conceptual or classification changes are sometimes implemented within the National Income and Expenditure Accounts. Documentation related to these conceptual changes can be found at Latest Developments in the Canadian Economic Accounts. No conceptual changes have been made to the Income and Expenditure Accounts this year.
Table I.1 Selected components, current revision
Revisions to the level of gross domestic product
As can be seen in Table I.1, the current revisions result in a $1.2 billion upward adjustment to the level of GDP at current prices on an annual basis for 2005. GDP estimates are revised down by $1.3 billion for 2006, $2.7 billion for 2007 and $2.4 billion for 2008.
The revision of $1.2 billion to GDP in 2005 is a result of reconciliation with the final 2005 Input-Output tables. This is the last time 2005 will be revised within a normal revision schedule. Chart 1 compares the value of the previous estimate to the revised estimate of nominal GDP on a quarterly basis.
Chart I.1 Gross domestic product
Description for Chart I.1
The upward revision in 2005 is mainly a result of revised estimates of operating surplus and inventories originating from the revised 2005 Input-Output tables. The downward revision to GDP in 2006 is mainly driven by lower levels of surplus, personal expenditures on goods and services and government current expenditure than had been previously estimated. These revisions are partially offset by upward revisions to inventories and exports of services. The upward revision to the exports of services is due to revised estimates of exports and imports of commercial services.
The downward revisions to GDP in 2007 is primarily due to lower estimates for labour income, personal expenditures on non-durable goods and government current expenditures on goods and services. These are partially offset by upwardly revised estimates of surplus.
The 2007 revision to labour income stems from the incorporation of employment income data (T4 records) from Canada Revenue Agency, as well as updated pension information from the Census of Pension Plans in Canada (PPIC) used in the construction of the supplementary labour income estimates. Lower than expected special payments for unfunded pension liabilities, a component of supplementary labour income, are a major factor in the lowering of the income estimate. The original estimate of approximately $10 billion for 2007 is now revised down to approximately $7 billion based on data from the PPIC.
The downward revisions to personal expenditures on non-durable goods is due to revised information from the annual retail trade survey and administrative data. The upward revision to operating surplus is due to the inclusion of updated estimates from the Annual Financial Survey for 2007 where the growth in corporate profits is greater than those published based on quarterly projections.
The downward revision in 2008 is a result of carrying forward the 2007 revision to labour income as well as downward revisions to taxes less subsidies on products, to personal expenditures on consumer goods and services and to business investment in machinery and equipment. These are partially offset by upward revisions to surplus and business investment in inventories.
Revisions to the growth of gross domestic product
The current revision to the annual growth rate of current dollar GDP (Table I.4) increases the estimate by 0.1 percentage points in 2005, decreases GDP by -0.2 in 2006, and -0.1 in 2007 and is unchanged in 2008. The cumulative revision to the growth rate is measured by taking the difference between the current growth rate and the initial growth rate. The cumulative revision for 2005 stands at 0.3 percentage points, in line with the average between 1997 to 2004. The 0.6 cumulative revision for 2006 is high by historic standards and is mainly a result of a large revision in labour income introduced as part of the benchmarking process to administrative data files last revision cycle.
Revisions to the quarterly GDP growth rate range from 0.2 percentage points to -0.3. Five quarters are revised upward, four quarters are revised downward and seven quarters remain unchanged. The largest quarterly revision over the four year period occurrs in the second quarter of 2006 where growth has been revised down by -0.3% due mainly to revised estimates of corporate profits, net trade and personal expenditures.
The estimates of annual real GDP growth (Table I.4) are revised up 0.1 percentage points for 2005, down 0.2 in 2006 and 2007 and down 0.1 in 2008. The cumulative revisions to the annual growth rate range from -0.2 percentage points in 2007 to +0.2 in 2006. The cumulative revision in 2005 (the only period which as gone through the entire revision cycle) is modest by historical standards.
On a quarterly basis, revisions to the growth of real GDP range from 0.1 percentage points to -0.2 percentage points. These revisions are consistent with historical averages. Real growth in GDP is revised downward seven times, upwards two times and left unchanged seven times.
Chart I.2 Growth rates of real GDP, annual
Description for Chart I.2
Chart I.3 Growth rates of real GDP, quarterly
Description for Chart I.3
Table I.2 provides a history of the revisions to GDP for the period 1994 to 2007. As noted earlier, each annual estimate is subjected to four different annual revision cycles as well as periodic historical revision processes. This table provides the published level and growth rate of GDP for a given year for each of these revision cycles. The largest revisions to GDP normally occur with the third revision cycle, in which the Income and Expenditure Accounts are benchmarked to the preliminary Input-Output Tables. Between 1996 and 2007 the average upward revision to GDP growth is 0.3 percentage points and the average downward revision is -0.4 percentage points following the first revision cycle. This changes to +0.6 percentage points and -0.3 percentage points with the second, and +0.8 percentage points and -0.6 percentage points with the Input-Output benchmarking process (the third and fourth revision cycle combined).
The implicit chained price index for GDP in 2005 is revised down 0.1 percentage points. The index was unchanged for 2006, is revised up by 0.1 percentage points for 2007 and 0.2 for 2008. The majority of the revisions are a result of an increase in the price used to deflate government current expenditures on goods and services. The source of these revisions are revised estimates of hours worked originating from the redesign of the Survey of Employment, Payroll and Hours.
Revisions to income aggregates
Table I.5 Revisions to income aggregates at current prices
Estimates of wages, salaries and supplementary labour income are revised downward by -$3.5 billion in 2007 and -$3.9 billion in 2008. Estimates are unchanged for 2005 and 2006. Revisions in 2007 are the result of the incorporation of data from tax files as well as other benchmark sources. Revisions to wages and salaries for 2007 are minimal, with the majority of the $3.5 billion dollar change stemming from downwardly revised estimates of supplementary labour income, specifically pensions. This downward revision for 2007 is carried forward into 2008, leaving the 2008 growth rate unchanged. The wages, salaries and supplementary labour income growth rate for 2007 was revised downward from 6.1% to 5.6%.
Within the System of National Accounts, surplus is defined as the income corporations obtain from their own production facilities—value added at basic prices, less compensation of employees, less taxes on production payable, plus subsidies received. It represents the last balancing item in the Input-Output Tables and is calculated for each industry. As part of the annual benchmarking to the Input-Output Tables, estimates of surplus are produced by incorporating the latest annual business and institutional surveys as well as various administrative data into the Input-Output framework. Once these benchmark estimates of surplus are derived, the revisions are incorporated into the Income and Expenditure Accounts. In the Income and Expenditure Accounts, surplus includes the following income components: corporation profits before taxes, interest and miscellaneous investment income, government business enterprise profits before taxes, inventory valuation adjustment, and capital consumption allowances.
Surplus is revised upward by $1.3 billion for 2005 and downward by $1.0 billion for 2006. It is higher by $1.6 billion in 2007 and by $2.4 billion in 2008. In 2005, the upward revision is mainly due to revised estimates of surplus in the wholesale, retail, transportation and warehousing and finance industries. In 2006, the downward revision originates mainly from changes to estimates in automobile manufacturing and mining. Table I.1 shows the revisions to surplus for 2005 to 2008 as well as how the revision is distributed among its various income components.
Estimates of corporation profits before taxes are revised up in 2005, down in 2006, up in 2007 and down in 2008. The revisions are small by historic standards with the mean absolute revision for this revision cycle resting at about 600 million. In comparision, the mean absolute revision for the 2007 revision cycle (covering the period 2004 to 2007) was $3.4 billion. New estimates from the preliminary Financial and Taxation Statistics for Enterprises including the General Index of Financial Information (GIFI) schedules and other annual sources have been incorporated for 2007. The 2008 estimates are projected using revised estimates from the Quarterly Financial Statistics for Enterprises.
Government business enterprise profits are virtually unchanged over the period 2005 to 2008.
Interest and miscellaneous investment income is revised upward in each year of the revision period. The revisions increase over the period from $174 million in 2005 to $1.8 billion in 2008. Revisions to this series reflect new and revised interest payment and receipt information from businesses.
Similar to interest and miscellaneous investment income, capital consumption allowances (CCA) are revised upward in each year. Revisons over this period range from $200 million to just over $800 million. Updated annual corporate income tax returns, together with additional depreciation estimates from the Investment and Capital Stock Division's perpetual inventory model generated these revisions.
Inventory valuation adjustment record minimal revisions in 2005 (+$177 million), downward revisions in 2006 (-$826 million) and 2007 (-$325 million) and and an upward revision in 2008.
Accrued net income of farm operators from farm production is revised upward for the four years of annual revision following the incorporation of the results of the 2006 Census of Agriculture (published in November 2008). Overall, farm cash receipts are revised upward, particularly in the crop sector, while farm operating expenses are adjusted downward (fertilizers, commercial feed, rent, etc.).
Net income of non-farm unincorporated business, including rent is revised upwards in 2005 and 2006. The revisions in 2005 and 2006 reflect the annual benchmarking to the Input-Output Accounts by industry. Revisions in 2007 and 2008 are large by past standards and are mainly due to revised estimates of the mortgage expense used in the calculation of net rental income.
The estimate of taxes on factors of production less subsidies is revised up in 2005, 2006 and 2007 and down in 2008. Taxes on products less subsidies are revised downward in 2005 through 2008. Revisions to both taxes and subsidies incorporate new public accounts and other financial information for the different government sub-sectors.
Revisions to expenditure aggregates at current prices
Table I.6 Revisions to expenditure aggregates at current prices
Personal expenditure on consumer goods and services estimates are revised downward by $0.3 billion in 2005, $2.0 billion in 2006, $1.8 billion in 2007, and $1.8 billion in 2008. The downward revisions to 2004 and 2007 are mainly a result of revised estimates for food, beverages, tobacco and household furnishings. The revisions for 2005 and 2006 originate from the incorporation of the input-output benchmarks. The revisions for 2007 stem from both the quarterly retail commodity data and the annual Retail Trade data. The downward revision to personal expenditure on services in 2008 is mainly a result of revised estimates for other auto related services, recreational services and expenditures on restaurants and accommodation services. The source of these revisions are updated administrative records used to estimate personal expenditures on services and updated information from the Office of the Superintendant of Financial Institutions Canada, used to estimate automobile insurance.
The changes to the government current expenditure on goods and services estimates are all downward; $0.3 billion in 2005, $1.8 billion in 2006, $1.7 billion in 2007, and $0.4 billion in 2008. These revisions reflect new data from the federal government's accounting system and provincial public accounts as well as the latest local government information. Survey results for 2006 from the Canadian Institute for Health Information (CIHI) and the Culture, Tourism and the Centre for Education Statistics are also incorporated and carried forward to 2008. Government gross fixed capital formation under went a modest revision in 2005 and 2006 with more a more substantial downward revision in 2007 (-$1.2 billion) and a large upward revision in 2008 (+$1.7 billion). There is no revision to government investment in inventory.
Overall current dollar business investment estimates register only small revisions for 2005, 2006 and 2007. The revision for 2007, while not large by historic standards, do result in a large change in the mix of investment taking place. Investment in non-residential structures is revised upward by $3.8 billion with most of this being offset by a $2.6 billion downward revision to machinery and equipment. The reason for this is a number of heavy oil upgraders that were originally classified as investment in machinery and equipment have been subsequently re-classified to investment in non-residential structures. The revision in 2008 is substantial with overall business investment revised down by $1.4 billion. Revisions to residential construction are minimal for all four years of the revision cycle.
Revisions to non farm business investment in inventories reflect the incorporation of new information from the latest annual surveys. The upward revisions to 2005 ($1.2 billion) and 2006 ($1.4 billion) reflect the results of the commodity balancing process that is integral to the compilation of the Input-Output Accounts, to which the Income and Expenditure Accounts are benchmarked. The upward revisions are recorded at $1.6 billion for 2007 and $1.8 billion for 2008. Farm inventories register small changes except for the upward revisions to grain inventories in 2007.
Exports in current dollars are revised upwards in all four years of the revision period. Revisons to exports of goods are minimal while the revisions to exports of services are substantial. Exports of services were revised up $0.5 billion in 2005, $1.4 billion in 2006, $2.4 billion in 2007 and another $2.5 billion in 2008. These upward revisions are almost entirely due to revised estimates of exports of commercial services.
Imports in current dollars record large upward revisions of $0.4 billion in 2005, $0.7 billion in 2006, $2.4 billion in 2007 and $2.7 billion in 2008. Similar to exports, the majority of the revisions are due to revised estimates of imports of commercial services. Given that the revisions to imports and exports are in the same direction and of similar magnitude, there is little impact on net trade and therefore overall GDP.
The revisions to imports and exports of commercial services primarily reflect the incorporation of broader survey coverage, and the increased use of tax data in their compilation. These methodological changes allow for refined estimates of growth in aggregate commercial services trade, as well as improved detail commodity allocation.
Other changes impacting the Income and Expenditure Accounts
With the release of the revised estimates of the Income and Expenditure accounts for 2005 to 2008 and the first quarter of 2009, a new seasonal adjustment procedure (X-12-ARIMA) along with revised estimates of the survey of employment, payroll and hours have been incorporated into the estimates of the income and expenditure accounts.
The X-12-ARIMA seasonal adjustment procedure is an enhanced version of the X-11-ARIMA seasonal adjustment procedure. The new procedure includes improvements that enlarge the range of economic time series that can be adequately seasonally adjusted and the overall quality of the seasonally adjusted series. Refinements were made to a number of the seasonal adjustment models for some income and expenditure series. These adjustments have resulted in revisions to the quarterly patterns for these series.
Several important changes to the Survey of Employment Payrolls and Hours (SEPH) were introduced with the January 2009 reference period. Among these changes is a major modification to the estimation methodology. The new estimation method better reflects the particular characteristics of individual provinces and territories and certain industries (most notably, with respect to the Income and Expenditure Accounts estimates, construction industries). Much of the SEPH data going back to 2001 is affected by this change, including average weekly earnings, average hourly earnings, and average weekly hours (with and without overtime).
To move to this new estimation method, more Business Payroll Survey (BPS) sampling was required in some provinces, and less in others. The BPS sample has thus been both redistributed and increased to 15,000 establishments per month (from 11,000) so that each province and territory is adequately represented.
Survey of Employment and Payrolls and Hours data are used extensively in the estimates of the most recent years of the Income and Expenditure Accounts. They figure prominently in the estimation of labour income, non-residential construction, estimates of personal expenditures on services as well as a proxy for price change when a price estimate is not available.
- Table I.1 Selected components, current revision
- Table I.2 Revisions to gross domestic product, historical perspective
- Table I.3 Revisions to gross domestic product
- Table I.4 Revisions to gross domestic product (growth rates)
- Table I.5 Revisions to income aggregates
- Table I.6 Revisions to expenditure aggregates
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