• What’s new in this publication
• Annual Provincial Input-Output Tables
• A Quick Guide to the IO Accounts
• Are some regions more sensitive to business cycles?
  (Structural differences in provincial and territorial economies)

What’s new in this publication

This publication is the third issue of Input-Output Structure of the Canadian Economy, Cat. 15-201-XIE in its electronic version. Noticeable features are:

• Improved data quality
  Statistics Canada undertook a massive project to improve its provincial economic statistics in 1996. Using sub-national surveys and other improved sources, the reliability of statistics published here is substantially improved and is approximately equal across provinces.
  
  
• Provincial input-output tables
  Beginning with reference year 1997, input-output tables are compiled and published annually in this catalogue for each province and territory of Canada. Sub-national tables sum to the national tables for Canada. The accounting framework and concepts of these tables are identical to the national tables that date back to the 1961 reference year. We also refer in the text to exports and imports between provinces as well as abroad. To have access to the interprovincial trade data please consult the following table in CANSIM Table 386-0002.
  
  
• NAICS
  In the present input-output tables industries are classified by the North American Industry Classification (NAICS), rather than the 1980 Standard Industrial Classification (SIC), to be consistent with Statistics Canada's adoption of NAICS. This has led to changes in the detail and presentation of goods and services. Two more classifications have been added for detailed level of dissemination: The industry classification level of dissemination has 283 industries and the commodity has 713 commodities. These classifications are in concordance to their respective “complete” detailed classification level. These new classifications make the presentation of the detailed I/O tables exempt of empty rows or columns of data.
  


• Valuation of industry GDP
  The valuation of industry gross domestic product has changed from factor cost to basic price, in accordance with conventions recommended by the United Nations report, System of National Accounts, 1993. Under the old valuation, industry gross domestic product was calculated to include the returns to labour and capital only, excluding taxes or production subsidies. The new valuation of industry GDP is basic prices which includes Other Taxes on Production and Other Subsidies on Production. Data on gross output is at modified basic price, because production data show prices actually received by producers thus reflecting the effect of subsidies on products.
  
  
• Refinements to the 1993 SNA conventions
  A number of refinements to the adopted recommendations were implemented affecting the treatment of specific transactions or industries.

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Annual Provincial Input-Output Tables

With this publication, Statistics Canada is providing input-output (IO) accounts for all provinces and territories of Canada on an annual basis starting with the year 1997. Until recently, annual publication of input-output accounts were limited to the national economy. These accounts are the most comprehensive and detailed statistics on transactions involving production activity and intermediate as well as final consumption of goods and services in the economy. The accounts are prepared at the Worksheet level of detail, consisting of 300 industries, 727 groups of goods and services (commodities), and 170 categories of final users. There are three more compact versions of the tables that are usually available to the public: the Link, the Medium and the Small aggregation tables. The most compact presentation of IO accounts, the Small IO tables, are provided in this release.

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A Quick Guide to the IO Accounts

What are Input, Output and Final Demand Tables

The input-output accounts of Canada and its provinces and territories are presented in three main data tables (matrices) for each jurisdiction. These are the output table, input table, and the final demand table. In addition, provinces’ and territories’ tables are linked together through an interprovincial flows table that shows each jurisdiction’s exports to, and imports from, other provinces and territories as well as abroad. These tables are compiled every year by Statistics Canada using newly instituted surveys and other improved sources that are designed to collect reliable statistics from each jurisdiction. The tables are part of the Canadian System of National Accounts (CSNA). The CSNA is a system of integrated statistical accounts consisting of four components: input-output tables, income and expenditure account (national and provincial), balance of payments and international position, and environment accounts. This system is “integrated” in the sense that all of the data belonging to this system are consistent with one another. IO tables cover all economic activities conducted in the market economies of each province and territory, encompassing persons, businesses, government and non-governmental (non-profit) organizations, and entities outside its jurisdiction that give rise to imports or exports (interprovincially or internationally).

To compile the IO accounts, Input-Output Division obtains source data from all relevant surveys as well as administrative sources such as tax records, professional and industry organizations, and non-government institutions every year for each province and territory. In the process of preparing statistical estimates, data from various sources are confronted, analysed by subject-matter experts, and used to compile estimates that are consistent with all other estimates in the System and provide a valid and coherent statistical picture of the subject matter. Consistency is a key feature of the statistics produced by the Accounts. It is highly valuable to the user because data taken from the Accounts do not disagree with each other or provide contradictory information. When various data bearing on the same subject do not provide a consistent picture, the user is left in the position of either reconciling inconsistencies without the benefit of necessary information, or discarding the data for lack of realism or credibility. A good example of how consistency is achieved through data integration is a process known as “commodity balancing”. Because, logically, the supply of a good or service from all possible sources must equal its demand or disposition in a given jurisdiction, every good and service in the economy is scrutinize to make sure it obeys this rule before it is used for IO compilation. When supply does not add up to demand or disposition (demand plus inventory), as is often the case¹, each data source is questioned, errors and omissions are corrected, and sometimes the data is re-estimated in light of more reliable information to achieve complete balance between supply and disposition.

What IO tables show

The tables are set up on a year-by-year basis, rather than in time series. Tables for Canada (the national tables) date back to 1961, while regular sub-national tables began with the 1996 reference year. The tables identify transactions in three ways:

1. they show data by commodity, a neutral terminology for a group of goods or services or type of transactions (e.g., “wages” or “indirect taxes”); The most detailed tables, the Worksheet tables, groups all transactions into 727 commodities. Tables that are published electronically—known as the “Small” tables—compact this detail into 59 commodities.
   
2. they show data by industry: a group of producing units, such as establishments or enterprises, that are engaged in market transactions in goods or services. The term “industry” does not imply that they are industrial businesses. The terminology covers all entities that conduct activities involving market transactions. The concept includes such groups as Municipal Governments, non-profit institutions such as Sports and Recreation Clubs, and professions such as Offices of Dentists. The Small tables published here show 25 very aggregated industries but, at the most detailed (Worksheet) level, the tables are made up of 300 industries. For the provinces,the territories and for Canada the inputs and the outputs tables show the data for 727 goods and services produced (for the output) or used (for the inputs) for each of the 300 industries;
   
3. they show data by categories of final demand, a convenient breakdown that identifies transactions that constitute final sales of goods and services.

The Final Demand Table

This table shows transactions in goods and services, in a province or territory, that are for final use. A transaction is for final use when the good or service is exported, when it is bought for final consumption (i.e., it is not used to produce other goods and services for the market), or as capital investment. While all purchases by households (persons) are considered final consumption in the System, businesses, governments, and other entities make purchases both as intermediate and as final expenditure. Their intermediate expenditures are shown in the Input (or Intermediate Use) table and their final expenditures are shown in the Final Demand table. For instance, when a retail store pays for electricity, it is shown as payment from Retail Trade industry (Input table) and as output for Electric Power industry (Output table). However, when the same store buys payment processing machinery, the payment is shown in the Final Demand table as investment by the Retail Trade industry and also either an output of the relevant Canadian industry, as an import, or as a withdrawal from inventories of the particular machinery. Imports are also shown in the Final Demand table.

In this publication, the Final Demand table is shown with a breakdown of 13 categories at the national level and two more categories in the provincial tables i.e. the interprovincial exports and the interprovincial imports, but at the most detailed level, IO tables are compiled with a breakdown of 170 categories. Regardless of the level of detail, Final Demand tables always distinguish the following broad categories:

1) Personal Expenditure of households², 2) Capital investment by persons, governments and non-profit entities (separately for Construction investment and Machinery and Equipment investment), 3) Current expenditures of governments, 4) Additions to or withdrawals from inventories (withdrawals are shown as negative values), 5) Exports to other provinces, 6) Imports from other provinces, 7) International exports of a provinces or territory and, 8) International imports of a province or territory. In the most detailed table these categories are presented with the 727 commodity detail, but are only shown with the more compact 59 commodity detail in this release. Some of these expenditures are presented with a useful breakdown. For instance, Personal Expenditure presented in this release is broken down into durable goods, semi-durable goods, non-durable goods, and services. In the most detailed table, final demand is presented with 170 categories, of which personal expenditure is shown for 52 categories.

The Input Table

The input table, also known as the Intermediate Use table, is where purchases that relate to production (current expenses) are presented for groups of producing units (industries). It was noted earlier that, in the context of input-output accounts, “industry” also refers to entities such as governments, non-profit organizations, professions, and so on. In these cases, inputs refer to their current (i.e., non-capital) expenditure on goods and services. The input table includes a few other entries that businesses would report on the expense side of their income statement. These are: Indirect Taxes on Production (e.g., property taxes), Indirect Taxes on Products (e.g., sales taxes), Subsidies on Products, Subsidies on Production (e.g., manpower training subsidies), Wages and Salaries, Supplementary Labour Income (e.g., employers’ contribution to employment insurance), Mixed Income (e.g., income of unincorporated businesses), and Other Operating Surplus. The latter item is the income or loss that is left over after accounting for the cost of all intermediate inputs and the items just discussed. This ensures that the sub total of inputs for a given industry is equal to its “outputs” (discussed below) and an accounting identity is maintained between inputs and outputs of industries. The most detailed input table for a province shows up to 727 goods and services used for each of 300 industries. The current release shows a more compact table with 25 industries and 59 goods and services.

Gross Domestic Product

The eight cost entries found in the input table (see previous paragraph) contain all the data one needs to calculate the Gross Domestic Product (GDP) of each industry in a province. GDP at basic prices—the statistic officially published by Statistics Canada—is obtained by adding the last six components. GDP at market prices is the sum of all eight cost components. Using this data, we one can calculate the GDP of a province or territory, GDP of the whole Canadian economy, showing either the provincial or the industrial composition of GDP across Canada.

The Output Table

The Output table, also known as the Make table, is where the values of production of good and services are recorded for each producing industry in a given jurisdiction (e.g., a province). Once again, the term “industry” is comprehensive, covering all entities except households (persons).

In most cases, production or output of an industry is simply their sales or shipments³. Production, of course, excludes used goods, because they were already counted as production in an earlier period. For retailers and wholesalers, production is considered to be the value they add to (or the margin they earn from) the products they sell, rather than the total receipt from their sales. For owners of real property, production is gross rent receipts, except for residential properties occupied by their owners where an imputation is made for the equivalent rental value of living in the property.

For banking and similar services, the net interest income of the institutions is considered production. Where they charge fees for their services, they are also considered output. The production of insurance carriers consists of premiums net of claims and adjustment expenses, plus incomes earned on invested reserves as well as rental income, plus changes in actuarial reserves. For construction, the value of work that has been put in place in a particular jurisdiction is considered output, whether this is done by hired contractors or by the industry (e.g. electric power) on its own account⁴. For holding companies, non-profit institutions (e.g., churches, clubs), the central bank and general government, the value of their output is computed as the sum of operating expenses, labour compensation and depreciation of fixed capital. Hospitals, schools, universities and other institutions that are funded by governments but also earn operating revenues have an additional output equal to their revenues from sales of goods and services. The output table (Small) included in this release shows 25 industries producing 59 commodities. At the most detailed level, the output table shows 300 industries and 727 goods and services for a province, territory, or the Canadian economy.

Are some regions more sensitive to business cycles?

Structural differences in provincial and territorial economies

by Mehrzad Salem

The industrial makeup of Canada’s regional economies is so diverse that most changes in the general economic environment - the rising value of the Canadian dollar, for instance - almost always have sharply differential impacts on provincial and territorial economies. This article explores how the industrial structure of the provinces and territories renders some of them more, and others less, sensitive to business cycles.

This study uses the last recession in Canada (1990 to 1992) to identify industries that tend to amplify a downturn, and those that temper its impact on a province or territory. Next, it examines the industrial structure of the provinces and territories to identify where cyclical industries are over-represented and which jurisdictions tend to depend more on non-cyclical industries that have secular growth paths.

The analysis suggests that regions in which a high proportion of gross domestic product (GDP) originates from non-cyclical industries will be less affected by a general economic downturn, whereas a province with a high representation of cyclical industries will be impacted more adversely.

Recent data from the Provincial Economic Accounts suggest that, between 1997 and 2000, some provinces (Quebec, Ontario, Nova Scotia and New Brunswick) have seen an increasing share of their provincial GDP coming from cyclical industries, despite the fact that Ontario and Quebec already have the highest proportion of cyclical industries in Canada.

In contrast, jurisdictions that were less dependent on cyclical industries became even less cyclical during this period. These included Newfoundland and Labrador, Saskatchewan, Alberta, British Columbia and the territories.

The last recession in Canada is widely cited as the period between the second quarter of 1990 and the third quarter of 1992, inclusive. Chart 1 depicts the trend of national monthly real GDP, with April 1990=100. This study used a detailed breakdown of real GDP by industry that identifies more than 100 industries to analyse and compare the behaviour of each industry and the aggregate total over this cycle. For simplicity, industries are divided into cyclical and non-cyclical, to the exclusion of marginal or ambivalent cases. Specifically, an industry meets the criterion if its real GDP contracts more than the economy for at least one quarter over the cycle. If an industry’s trend lies below the aggregate for three consecutive months, it is considered cyclical; otherwise it is not.

It is important to do this examination at a fairly detailed level (using a 110 industry breakdown) because industries that are similar in many respects may behave differently over a business cycle. For instance, manufacturing industries are typically very cyclical. But a look at individual industries reveals important differences in how they are affected by a downturn. While most manufacturing industries contracted more than the economy as a whole during the last cyclical downturn, this was not the case for the food manufacturing industry, nor for the computer and electronic product manufacturing industry. Both continued to expand after the economy entered the downturn, and registered solid growth over the entire cycle. The computer and electronic industry was in the midst of a phenomenal technological innovation boom that may have offset recessionary influences of the broader economy⁵. Both industries are classified as non-cyclical, based on the above criterion.

The first step was to designate for this analysis those industries that tend to make a province’s economy more prone to a downturn, and those that will likely moderate the impact of future business cycles on the province or territory. Once these industries were identified, the study measured their dominance in each provincial or territorial economy according to the industry group’s share of the GDP of the province or territory in 1997 and in 2000.

If non-cyclical industries become more dominant in a province’s economy, they would tend to make it more resistant to sharp declines in future business cycles. If cyclical industries occupy a larger share of a province’s GDP, they would have the opposite effect.⁶

Table 1 shows how industries making up the national economy have been split into two groups based on the above analysis. In Chart 1, the total real GDP of each group is contrasted with the economy (marked All industries) as a whole over the 1990-92 recession. While the economy experienced a 2.7% pullback at the bottom of this cycle in early 1991, non-cyclical industries as a group expanded by about 4%, while cyclical industries suffered a contraction of about 8%.

Table 1

As the cycle came to an end in September 1992, the two groups had diverged further, separated by about 15 percentage points. What this suggests is that a province or territory whose domestic economy is more based on non-cyclical industries is less likely to experience a sharp contraction in a future business cycle, all else the same. How a province or territory will fare in a future business cycle will depend critically on the proportion of its economy’s GDP coming from cyclical rather than from non-cyclical industries.

This study analysed data from Provincial Economic Accounts to show the proportion of GDP coming from noncyclical industries between 1997 and 2000, the last year this detail is available⁷. Using this data, Chart 2 shows how much of the GDP of each province or territory comes from non-cyclical industries that are likely to grow during a cycle, as suggested by Chart 1. It also shows how the structure of provincial economies changed between 1997 and 2000.

Less than one-half of the GDP of Quebec and Ontario originates from non-cyclical industries. In contrast, all other provinces and territories are more reliant on non-cyclical industries than the national average. In Ontario, Quebec, New Brunswick and Manitoba - provinces where more than one-half of the GDP originates from cyclical industries - manufacturing is a significant part of the provincial economy. In Ontario and Quebec, more than 20% of GDP comes from manufacturing industries that were classified as cyclical because they under-performed the overall economy for at least one quarter during the 1990-92 recession. Between 1997 and 2000, provinces in western Canada and the territories became less dependent on cyclical industries. New Brunswick and Nova Scotia followed an opposite trend, as did Quebec and Ontario. Newfoundland and Labrador’s economy became considerably more non-cyclical as the Hibernia offshore oil project came on stream and made the industry the largest single source of the province’s GDP in 2000, accounting for more than 15%. While the oil and gas industry is well known for its exploration cycles, the extraction industry tends not to follow broad-based business cycles in Canada.

By far the most dramatic structural shift occurred in Newfoundland and Labrador. There, the share of oil and gas extraction in the province’s GDP rose from a fraction of 1% in 1997 to more than 15% in 2000. While this certainly bodes well for the province should the economy encounter a downturn, it was partially offset by declines in the share of GDP of two important non-cyclical industries: finance, insurance and real estate (-3.6%) and public education (-2.0%).

The industrial structure of Prince Edward Island’s economy did not change greatly. Most noticeable was a 3.5% rise in the share of food manufacturing - a non-cyclical industry - in the province’s GDP.

Nova Scotia’s economy became slightly more cyclical because the share of its finance industry declined, while at the same time, it saw expansions in several manufacturing industries, such as paper, petroleum and coal products and rubber and plastic product manufacturing. This occurred despite a 2.8% increase in the share of GDP held by the non-cyclical oil and gas extraction industry.

New Brunswick experienced a similar trend. There, cyclical industries such as construction, paper manufacturing, and petroleum and coal products, as well as administrative and support services industries, occupied larger shares of the province’s GDP, while many of its non-cyclical industries showed declining shares.

Quebec and Ontario, the provinces with the most cyclical economies, saw more of their GDP coming from cyclical industries in both manufacturing and services. In Ontario, transportation equipment, fabricated metal and machinery manufacturing increased their share of the provincial economy. In addition, professional, scientific and technical services - a cyclical service industry - increased its share of Ontario’s GDP to 5%, rivalling the province’s retail trade industry in terms of size.

In Quebec, an increasing share of GDP came from cyclical industries in manufacturing, and professional, scientific and technical services and administrative and support services.

In Manitoba, growing shares in a number of cyclical industries were offset by growing shares in a number of non-cyclical industries, as well as contractions in machinery manufacturing and truck transportation, both cyclical industries. The province’s structure did not change significantly between 1997 and 2000. Cyclical industries accounted for about 51% of its GDP, about the same as the national average (52%) in 2000.

Saskatchewan, Alberta and British Columbia became substantially more non-cyclical. The change was dramatic in Saskatchewan and Alberta. In Saskatchewan, oil and gas extraction increased its share of provincial GDP by 5.7 percentage points, while in Alberta this industry increased its share by 7.4 percentage points.

In Saskatchewan, the shares of mining and construction declined, as did shares of cyclical services industries, such as publishing, professional, scientific and technical services and administrative and support services.

Alberta’s economy became considerably more non-cyclical because of a 7.4 percentage point increase in oil and gas extraction’s share of GDP. This was helped by declining shares in cyclical industries, such as wholesale and retail trade and truck transportation.

British Columbia’s economy also became more non-cyclical. However, oil and gas extraction played a more modest role, rising only 2.2 percentage points in the province’s GDP. Increasing shares for electric power generation, computer and electronic product manufacturing, and significantly lower shares for forestry and logging and construction, were important factors.

The economies of the territories, combined for this analysis, also became more non-cyclical, principally because an increasing share of their GDP came from oil and gas extraction. This was partly offset by a higher GDP share held by mining.

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¹ Statistics are often prepared according to different concepts. They are also evaluated on a different basis or cover slightly different periods, i.e. fiscal versus calendar year.

² This includes personal spending by residents of a province, whether spent in their own or another province or territory or country while visiting. It also includes the full value of capital equipment under finance leases acquired by individuals (e.g., automobiles). Personal expenditure is higher than actual (cash) spending because of a number of national accounting imputations. These are: an imputation for services (rental value) of owner-occupied dwellings, an imputation for interest payments to financial institutions net of interest income from the same source, an imputation for the investment income of insurance carriers and for changes in their actuarial reserves when related to persons net of insurance claims.

³ Production also includes what is produced in a year but not sold (added to inventories), excludes sales out of inventories (and gains or losses from changes in inventory values), and includes own-use (e.g., feed corn grown by farmers for their own livestock).

⁴ This means that construction “industry” covers the entire activity, rather than only the work of entities working in the construction industry.

⁵ The industry entered a significant cyclical downturn in late 2000, but this was not part of a broader economy-wide phenomenon.

⁶ These generalizations depend crucially on the assumption the industries that were cyclical in the 1990-92 cycle will behave similarly in a future cycle.

⁷ The data used to assess the share of cyclical industries in the GDP of provinces and territories is taken from current price input-output tables for reference years 1997 and 2000.