Methodology

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The following information should be used to ensure a clear understanding of the basics concepts that define the data provided in this product, of the underlying methodology, and of aspects of data quality. This information will provide users with a better understanding of the strengths and limitations of the data, and how they can be effectively used and analysed.

Concepts and variables measured
Coverage
Data sources and methodology
Revisions
Data quality (accuracy)
Comparability of data and related sources

Concepts and variables measured

At the core of the Provincial and Territorial Economic Accounts is the concept of Gross domestic product (GDP) and its components. It is a measure of aggregate economic activity that represents the unduplicated value of production in two ways: (i) Incomes arising from production and (ii) final expenditures on production. The first is the sum of factor incomes generated by productive activity - that is, incomes representing the returns to the labour and capital employed. The second is the sum of all sales to final users (consumers, governments, business on capital account, exports less imports). The two measures of GDP may not be equal to each other, giving rise to a statistical discrepancy.

GDP income-based

The income-based estimates show factor incomes accruing to labour and capital generated as part of the production process. The largest source of factor income is wages, salaries and supplementary labour income, which accounts for over half of GDP. The other income components are corporation profits before taxes, interest and miscellaneous investment income, accrued net income of farm operators, net income of non-farm unincorporated business (including rent), and inventory valuation adjustment. Together these six aggregates, plus taxes less subsidies on factors of production, yield Net Domestic Product at basic prices. GDP at market prices is calculated by adding taxes less subsidies on products as well as capital consumption allowances and one half of the statistical discrepancy.

GDP expenditure-based

On the expenditure-based side, GDP is broken down into the categories of final purchases of goods and services. The major aggregate is personal expenditure on consumer goods and services, accounting for close to 60% of GDP. Government current expenditure on goods and services is a second component and government and business investment spending is a third. The sum of these components of the summary expenditure account is referred to as final domestic demand. To move from final domestic demand to GDP, the value of physical change in inventories, net exports of goods and services (that is, exports minus imports) and one-half of the statistical discrepancy are added.

Real GDP

Real GDP is related directly to other key macroeconomic variables such as employment, business cycles, productivity and long-term economic growth.

Real GDP is a measure of the volume of production. To measure this concept, GDP expenditure-based components are adjusted to eliminate the effect of price change. This process is known as deflation, and makes use of expenditure-side associated price indexes. Until 2001, real GDP was calculated by using a 'Laspeyres' formula. As of fall 2001, the Provincial and Territorial Economic Accounts adopted the Fisher index formula, chained quarterly, as the official measure of real expenditure-based GDP. The reason for the adoption of this particular formula is that it produces the most accurate measure of quarter to quarter growth in GDP.

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Coverage

GDP includes all activities within the System of National Accounts production boundary. Illegal transactions are, for the most part, excluded.

Sector accounts

The Provincial and Territorial Economic Accounts also provide considerable information on the four major sectors of the economy: persons and unincorporated business, corporations, governments and non-residents. The sector accounts record (i) incomes and outlays, (ii) saving and investment and (iii) transactions in financial assets and liabilities for each of the four broad sectors of the economy. Also included are detailed tables on government sector revenue and expenditures for the previous year. The sum of the final (non-transfer) income, or the final (non-intermediate) expenditure, of the sectors equals gross national product.

A sector has current incomes and current outlays. The difference between the two is saving. Saving, combined with capital consumption allowances and net capital transfers, is a source of funds for investment, or non-financial capital acquisition. To the extent that saving exceeds (falls short of) investment the sector is said to be in a net lending (net borrowing) position. A second measure of net lending/borrowing is provided by the difference between the transactions in financial assets less the transactions in liabilities and equity. The two measures differ somewhat due to statistical errors.

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Data sources and methodology

The Provincial and Territorial Economic Accounts provide a measure of macroeconomic activity on an annual basis, as represented by income and expenditure-based GDP, and rely heavily on a wealth of information from various areas of Statistics Canada.

Sources

A large amount of information from various survey divisions within the bureau, along with other data, is compiled, integrated and analysed as part of the complex process of arriving at provincial GDP's and their component categories and underlying sector accounts.

Major suppliers of data within Statistics Canada include: Agriculture Division, Investment and Capital Stock Division, Income Statistics Division, International Trade Division, Distributive Trades Division, Manufacturing, Construction and Energy Division, Industrial Organization and Finance Division, Labour Division, Prices Division, Public Institutions Division, and Tax Data Division. Numerous external and administrative sources of data are also used.

General methodology

Final expenditure measures by detailed component are compiled for the major sectors of the economy. Data are analysed for time series consistency, links to current economic events, issues arising from the source data, and with respect with coherence. The same process is followed for the income measures. Initial estimates of income and expenditure-side GDP are then produced, and the discrepancy is assessed. Real estimates are then compared with the results of the provincial GDP by Industry program. Annually, provincial the income and expenditure data are benchmarked to the Input-Output Accounts.

For further details on definitions, concepts, and sources and methods, please refer to the Guide to the Income and Expenditure Accounts, catalogue no. 13-603E.

Seasonal adjustment

Almost all series of the quarterly Provincial and Territorial Economic Accounts are seasonally-adjusted. Seasonal adjustment is generally made at the lowest level of aggregation, and seasonally-adjusted aggregates are obtained by summation. Statistics Canada's X-11 ARIMA is used to seasonally adjust series.

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Revisions

Preliminary estimates are released in the spring following the end of the reference period, and revised in the fall of the same year. This latter release also comprises revisions to the three previous years. Estimates are not normally revised again except when historical revisions are carried out, usually once per decade. Statistical revisions are carried out in order to incorporate the most recent information from surveys, taxation statistics, public accounts, censuses, etc., as well as from the annual benchmarking process of the Input-Output Accounts.

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Data quality (accuracy)

The accounts are designed as a double-entry system in which the income- and expenditure-based GDP totals should, in principle, be identical. In fact, a difference virtually always arises between them due to errors in the source data, imperfect estimation techniques, differing seasonal adjustment methods and discrepancies in the time at which the incomes and expenditures are recorded.

The size of the discrepancy, which stems from the estimation procedure, is one gauge of the system's overall reliability. However, it is a partial and quite insufficient gauge. Another quality measure is how well real expenditure-side GDP compares to the real GDP by Industry measure.

No direct measures of the margin of error in the estimates can be calculated. The quality of the estimates can be inferred from analysis of revisions and from a subjective assessment of the data sources and methodology used in the preparation of the estimates.

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Comparability of data and related sources

It is not possible to produce an equivalent to the Provincial and Territorial Economic Accounts, as measured in terms of income and expenditures except at the aggregate level. At the level of GDP, the unduplicated value of production can also be measured by taking the gross value of production of each firm and subtracting each firm's intermediate inputs in the form of its purchases from other firms (including imports) to yield the 'net value added' to production by the firm. Estimates of this type are produced in the provincial Input-Output tables, as well as in the monthly industry-based estimates of GDP by province.

Certain components of income and expenditure-based GDP can be obtained in survey divisions, but typically the data are not directly comparable. For example, the variable "corporate profits" is published in the Quarterly Financial Statistics release, but it differs from the income-based GDP measure due to certain national accounts' concept adjustments. Also, the national estimates have to be allocated by province and by territory to reflect where the activity took place rather than where the head office is located.