Introduction

The main objective of the Canadian System of National Accounts (CSNA) of Statistics Canada is to provide information on the major economic activities taking place in Canada. Fundamental among these activities is economic production, an activity that can be described as one in which producers use inputs to create outputs. Evaluating the level of production is important as it measures the amount of goods and services supplied by the economic system, available for consumption by society. Changes in this level are key indicators of economic growth which is one of the major factors influencing the general well-being of the country. An aggregate measure of production known as Gross Domestic Product (GDP) is therefore indispensable for monitoring and evaluating the progress and health of the Canadian economy.

Economic production is a physical process in which producers employ labour, capital and entrepreneurship in order to transform inputs of goods and services into outputs of other goods and services. Since the production process involves the employment of labour and capital, producing goods and services also generates earnings in the form of wages, salaries and profits. This money then finds its way back to producers through expenditures by households, governments, business enterprises and residents of other countries on the goods and services produced. Accordingly, it is possible to approach the measurement of economic production in three different ways, as it is perceived from three alternative perspectives: in terms of unduplicated production, incomes generated and final expenditure. The production approach measures the total unduplicated value of goods and services produced, the income approach measures the labour and capital costs of production, and the expenditure approach tallies final expenditures on goods and services. The three alternative measures of GDP independently but equivalently portray the production activity taking place in the country. Estimates of GDP are widely used by governments, businesses, trade and labour organizations, academic researchers, journalists and the general public for a broad range of analytical, modelling and policy formation purposes.

Like most statistical agencies of the OECD countries, Statistics Canada compiles all three alternative measures of production. With information on the sources of output and incomes generated by processes of production, the output-based GDP and the income-based GDP yield a comprehensive and detailed report on the supply side of domestic production. The expenditure-based GDP, on the other hand, traces the disposition of output among the various categories of final demand and thus, offers a demand side view of the Canadian economy. Estimates of the three GDP series are produced within the highly integrated conceptual and statistical framework of the CSNA, sharing a consistent set of concepts, definitions and classifications. Published monthly, output-based measures of GDP deliver the earliest and most up-to-date information on current developments in the economy. Both the income- and expenditure-based GDP measures are published on a quarterly basis.

In the context of output-based GDP it is important to examine how output measures of production by individual producers could meaningfully be added together in order to arrive at a GDP estimate for the country. Output of an automobile assembly plant, for example, is the number of cars produced, or in terms of dollars, the value received on the market for those cars. This concept of production causes difficulties, because adding the assembly plant's output, so defined, to that of a tire manufacturer who supplies the assembler with tires, leads to double counting. Since the money a manufacturer receives for a car reflects the value of the entire car including the tires, adding the revenue of the tire manufacturer to the revenue of the car assembler means the tires are counted twice. But if the cost of the tires is deducted from the receipts from selling the car, the result is a measure of the automobile assembler's output that does not include the value of tires. Therefore adding this to a similarly defined measure of the tire manufacturer's output avoids double counting. The assembler is not credited with having contributed the value of the tires to the final product, as only the value he has added by assembling the car is recognized. In other words, the value of tires is only counted in the output measure of the tire industry and only the value of assembly is included in the output measure of the assembly industry. This newly created additional value by which the car manufacturer augmented the value of tires (and in fact the value of all intermediate inputs) is called gross value added. Gross value added is exactly what is required in order to obtain the nation's production as the sum of the contributions made by different industries.

Gross value added of an industry is a balancing item between intermediate inputs and outputs. Although it is an abstract, not an independent entity, and as such cannot be observed directly, it can nevertheless be calculated by subtracting from the value of output the value of intermediate inputs, whether purchased from other industries or imported. This residual amount indicates the amount the industry itself has added to the value of its products and excludes the contributions made by intermediate inputs. Summing gross values added of all industries yields an unduplicated measure of production for the economy as a whole. Although the cost of all intermediate inputs which are entirely used up in the course of production is deducted, those costs associated with the consumption of capital assets which are used repeatedly in processes of production for more than one year (such as buildings, machinery and equipment), are not subtracted. The term gross in 'gross value added' signifies this fact. It should be noted, that for the sake of shortness, the term 'value added' in this document always means 'gross value added', unless otherwise specified.

The topic of this document is the output-based GDP. This GDP is called value added by industry in the International System of National Accounts 1993 (SNA1993)¹. In Canada, it is known as Gross Domestic Product by industry because its derivation is based on the output measure of production by all industries.

The present report is the second volume in a series which continues the documentation of output-based GDP that began in Gross Domestic Product by Industry, Sources and Methods, Statistics Canada, Catalogue no. 15-547, 2002. This first volume defines in general terms what output-based GDP is, describes its various uses and connections with the other components of the CSNA and with a focus on the subject of deflation, deals with the calculation of the monthly GDP by industry estimates. The choice of deflators, the role of the base year, the method of rebasing and such statistical transformations as benchmarking, trading day and seasonal adjustment are also explained in the first volume.

The objective of this second volume is to continue and complement the already published general summary of concepts and definitions with a comprehensive record of specific methodologies, including data sources, on an industry by industry basis at the so-called worksheet level². The description is organized to portray the following aspects of each industry:

Industry definition: Summary of the principal activity or output of establishments classified to the particular industry.
Source: North American Industrial Classification System. Canada 1997.

Output, supply and demand: Overview of the industry's productive activity by describing which goods and services constitute most of the industry's output and who are the most important purchasers of these products.
Source: Input-Output Tables. Canada 1997.

Monthly projector: Description of the type of indicator used for deriving estimates of monthly constant price value added.

Data: List of data entering the monthly projector system, including the data sources.

Deflation: Description of calculating constant price measures.

For easy access to the documentation of a particular industry, a comprehensive cross-referencing is given in the Table of contents and with the aim to provide a uniform overview, the material is presented in the same format for each industry. If a monthly methodology is shared by various industries, the full description of the methodology is given for each. This practice is intentional. The objective of the duplication is to ensure that in all cases a complete account is readily available without cross-referencing to pertinent information given at another section.

Notes:

1. The meaning of the word 'output' in the term 'output-based GDP' needs to be elaborated here to avoid any confusion between its definition in the SNA 1993 and the earlier traditional use of it. Traditionally, GDP used to be called 'output of an economy' and in this context output was always meant to be 'net output' . Net output was defined as 'gross output' (total value of goods and services produced) minus the intermediate consumption of goods and services in its production. The terms 'gross output' and 'net output' are not used anymore in the SNA1993. 'Net output' is now called 'value added' and the term 'gross output' is replaced by the term 'output' .

2. The worksheet level is the most detailed level in the industrial classification at which value added estimates are prepared by the CSNA.