BBC BLOGS - Stephanomics
« Previous | Main | Next »

GDP estimates becoming more accurate?

Post categories:

Stephanie Flanders | 10:43 UK time, Wednesday, 25 November 2009

A little more on the ONS's defence of its numbers against criticism by the likes of Goldman Sachs, whose chief economist, Jim O'Neill I recently interviewed for the Today programme and other BBC outlets. I wrote up the Goldman Sachs analysis of the figures on the day the first estimate came out ("First draft of UK economic history").

The key claim in the ONS article [64KB PDF] is that, far from getting less reliable, the first estimate of GDP has been getting more accurate over time, despite the fact that it covers only 40% of the economic activity included in the more mature, Blue Book estimate published a year later.

Specifically, the ONS finds that between the first estimate and the one from two years later, the average revision since the mid-90s has been a mere +0.05 percentage points. Although there is a bias in the revisions - the numbers tend to be revised up more often than down - but it is much smaller than suggested by some critics.

As the authors of the article admit, this greater accuracy may simply be down to the fact that the economy was more predictable in this period. We didn't have a recession, and output and inflation were, in the words of Mervyn King, unusually nice.

In the wake of the controversy over the preliminary numbers, some economists have taken the ONS's side - notably Danny Gabay, at Fathom Consulting, who recently published a detailed rebuttal to the Goldman Sachs analysis making some of the same points as in the ONS article [120KB PDF].

Gabay's basic point against the Goldman Sachs economists was that they were including too many data revisions that were due to changes in the way the ONS collated the data - like the introduction of "chain-linking" in 2003. When new statistical methods are introduced, the ONS will usually go back and amend past figures, to make the data set consistent over time - in some cases making quite significant changes as far back as 1961. But it is a little odd to then criticise, on the basis of these revisions, the first estimate in, say 1971, for failing to anticipate later techniques.

So, the ONS has come out fighting. And they may have the last laugh. But whatever the past record, there's no getting around the increasingly wide discrepancy between the surveys, and the employment data, on the one hand, and the official data on the other.

Three European economists published their own study of the numbers yesterday, including a monetary economist at the European Central Bank.

There's no reason to suspect they have an axe to grind with the ONS. But they think the third quarter numbers are pretty odd too, especially now that the Eurozone is thought to have grown by 0.4% in the same period.

They argue that "the lag with respect to the Eurozone would be very much at odds with historical experience." (See chart below.) Using their own model, based on both survey data and GDP, they estimate that the UK grew by 0.15% in the third quarter. Clearly, the debate is not over yet.

Quarterly GDP growth, EU vs. UK
Chart showing quarterly GDP growth

Comments

  • Comment number 1.

    Whether we are growing at .4% or contracting at .4% is not really what matters. The real economy is about unemployment, inflation, repossessions, bankruptcies and disposal income. Perhaps we need a composite indicator of general economic well being rather than the endless debate about fractions of percentages. I am sure this would show now and for some time ahead that we are not a happy bunch of bunnies!

  • Comment number 2.

    if secretive goldman say anything its because they are talking their book?

  • Comment number 3.

    there's no getting around the increasingly wide discrepancy between the surveys, and the employment data, on the one hand, and the official data on the other.
    ----------
    Ha! THis reminds me of the various Government 'Inflation Measurements', usually 'adjusted' to remove all the things that I was required to spend on and that reduced my income. These imaginary figures where then used by others to determine pay rises etc. An interesting thing I've been aware of since about 2001, my income has not been rising, even in the supposedly good times under this Government, my income remained static, which is one reason why my debts began to grow and not decrease, simply to maintain my status quo required more of my income, and having a growing family meant increased commitments, or harming the future of my children, so my borrowings increased. We need to expand the maxim,

    "There are Lies,Damned Lies and Statistics"
    by adding
    "and that combination of all three, Government Statistics"

  • Comment number 4.

    #1 couldnt agree more. This is fiddling while Rome burns.

  • Comment number 5.

    This Government has treated statistics like the famous Chocolate Ration reduction/increase in Orwell's 1984.

    Remember in the boom there were numerous tables and articles in the newspapers that would calculate your personal rate of inflation. To me these seemed more accurate indicators than the official figures which seemed conveniently low and also meant interest rates could be kept low which in turn caused the depression, sorry, slump.

  • Comment number 6.

    Sorry, but the fact something only has a small revision does not indicate the uncertainty of the assessment. The uncertainty will always be bigger. When such small growth figures are being suggested the uncertainty can be bigger than the growth rate, so to all intents and purposes the graph is flat. That is the problem.

    And there are many strange fruits in the system that wiil not make a good harvest.

    Talking about data - There is also the small matter of items like 60 billion never disclosed until it has to be.

    The idea any figures have precision does not really help. In particular the worrying thing is that some areas of the economy can be performing differently to others and cancelling on another out. If the area on the up drops because of a policy change to encourage somewhere else then a sudden drop can occur. If all these flutters in the system group who knows what is going on. You simply are measuring the effects of what is there but interpreting it as something else.

    Safety in numbers?

  • Comment number 7.

    Goldman Sachs and the Government arguing about deception of the public. Let me think...wolrdwide financial crisis...could have been prevented had government provided correct oversight.....could have been prevented had not the financial industry gained changes in the regulations in order to set up fake loan insurance schemes......seems like these are the types of people we should certainly be listening too. Of course not much has changed for either, it is the rest of the people who suffer. Write their speeches backwards, maybe there is a secret message therein.

  • Comment number 8.

    One thing you have to admire about Goldman Sachs is their timing. They, like other investment banks, play with fire e.g. took a huge hit on momentum trading in the market collapse of October 2008, yet manage to avoid oblivion (they only borrowed US government money for about one quarter). In the summer of 1929 Goldman Sachs launch two investment trusts (Shenandoah and Blue Ridge) which were leverage at "eye watering" levels. Goldman Sachs walked before the October crash. Clever or lucky?

    Anyway the GDP figures is always a smoke and mirrors operation because somebody has to decide on the GDP monetary deflator i.e. adjust for inflation - which is a complete work of fiction produced by the ONS

  • Comment number 9.

    There are two sides to this which appear contradictory - but are not. First, Devilsadvocate at 3# is obviously right that the inflation statistics have been manipulated; and that endless revisions mean that people can no longer compare things over time. It would be interesting to see what the effective rate of inflation is if we take a standard basket of things we must buy (including housing by the way).

    Second, however, is that the current mismatch between the ONS and other survey data, is probably due to the fact that so many people are trying to talk up the recovery - or indeed talk us into a recovery. In these circumstances we're better off looking at the hard data.

    The conclusion in both cases is the same - namely that we badly need data that we can trust: and that data becomes more trustworthy, and useful, if it is produced to the same specification over a long period of time.

  • Comment number 10.

    I seem to remember you updated your last GDP blog to give some banker the opportunity to cry wolf that the negative GDP was wrong and that the economy had definately grown. Will he be appearing later to confirm he got it wrong...

  • Comment number 11.

    3. At 12:55pm on 25 Nov 2009, DevilsAdvocate
    We need to expand the maxim,
    "There are Lies,Damned Lies and Statistics"
    by adding
    "and that combination of all three, Government Statistics"
    -------
    How about: There are Lies,Damned Lies and Politics

  • Comment number 12.

    "Gross domestic product is calculated by adding together total consumer spending, total government spending, total business spending, and the value of net exports." (Free dictionary)

    It shouldn't be too hard to get this information, should it?

  • Comment number 13.

    #8 bryan mcgrath wrote:

    One thing you have to admire about Goldman Sachs is their timing. They, like other investment banks, play with fire e.g. took a huge hit on momentum trading in the market collapse of October 2008, yet manage to avoid oblivion (they only borrowed US government money for about one quarter). In the summer of 1929 Goldman Sachs launch two investment trusts (Shenandoah and Blue Ridge) which were leverage at "eye watering" levels. Goldman Sachs walked before the October crash. Clever or lucky?

    --------------------

    I think Goldmans have been more than clever or lucky!

    Goldman Sachs has engineered every major market manipulation since the Great Depression - and they're about to do it again.

    'The Great American Bubble Machine'
    http://www.rollingstone.com/politics/story/29127316/the_great_american_bubble_machine

  • Comment number 14.

    Finance director to Board of Directors:- 'I didn't have any accurate numbers so I just made this one up - $46,935,467 - studies have shown that accurate numbers aren't any more useful than the ones you make up.'

    Board of Directors :- 'How many studies showed that?'

    FD - '87'.

  • Comment number 15.

    If the ONS can now produce this statistic with accuracy it should be produced monthly for the preceeding three months.

  • Comment number 16.

    I my view a recession ends when tax receipts increase as opposed to decrease.

    As previously mentioned I am self employed and many of my friends are similar.

    Judging by the way things are going this year all of us reckon our tax payments are going to go down not up.

    And the amount of money we're spending on new equipment and such like is equally going down.

    Further more no one I know is thinking of increasing the numbers employed or can see any reason why turnover will increase in the near future.

    Ok so I'm based in the Northwest, perhaps it's different in other parts of the country, anyone care to comment?





  • Comment number 17.

    Estimates, becoming more accurate? Not if you're the ECB. They can't believe we're in recession it seems because everywhere, save for Britain and Spain, are back into positive growth. Economists generally are saying they have got it right, so the good old ONS "must" be wrong.

    Are Economists being pressured to come up with positive growth numbers?

    Mind you, the ONS has been wrong before and had to go through a root and branch re-jig because they had to admit to providing erroneous inflation figures in the early 1990's.

    But, as others have commented whether it's negative 0.4 or positive 0.15, out in the real world these figures are broadly irrelevant to ordinary people. Current economic conditions are largely phoney. When QE ends, we begin to repay public sector debt and the expectation arises that the Fed will start to support the Dollar, THEN the figures used to calculate economic growth might be more credible.

    However, in the graph above there have been instances of EU and UK growth trends going in opposite directions before, Aug '96, May '98, Jan '03? So maybe the EUVOX lot need to look back a bit?

  • Comment number 18.

    Don't be a turkey that votes for Xmas.

    Vote outside the LIB/LAB/CON box at the next GE.

  • Comment number 19.

    I wholly agree with jauntycyclist in Message 2 that Goldman are not an objective commentator. Any statement made by them has to be treated with due caution. For example when oil reached US$148 a barrel eighteen or more months ago they shouted loudly it would go to US$200 and promptly sold off their investment.

    I would think that a standard deviation of plus or minus 0.5% is pretty good given the complexity of the data. We need to give the statisticians in the ONS a bit more respect as they are now not allowing ministers to walk all over them.

  • Comment number 20.

    Are the mighty Goldman Sachs (G-S) really so smart that is the question? which is only topped off by when is a bank not going to be talking its own book.
    In short G-S never have nor will do God's work, but they like all Americans know to get a quart out of a pint pot where the Brits accept a half pint and seek to offer the other half to those who claim they can't afford it!
    Insofar as coming up trumps on details when put agianst the stats from the ONS one of the earlier contributors made the suggestion about G-S talking their own book, what might be fairer is to suggest when has any bank not talked their own book and aren't G-S just doing what everyone else does already.
    So long as people run scared of G-S and follow like sheep no one will dig deep enough to see they know no more than anyone. Spin and ego ate what keep them going and as we saw when push comes to shove they literally imploded with all little resistence.
    The days when G-S stood for something are no longer, and were they to show some serious humility folk might respect them.

  • Comment number 21.

    #14 Did you borrow that from Dilbert? It sounds familiar.

    When talking about the UK and EU's relative performance in recovery, wouldn't it have been more useful to have a graph that actually covered the last recovery from recession? Or would that not have supported their point of view?

    #19 Actually, any statement by anyone should be treated with caution - virtually everyone has an axe to grind now. And we know they can just pick the statistic that shows what they want.

  • Comment number 22.

    I am reminded of Winnie the Pooh. He once said, "I am a bear of little brain. Big words bother me."

    From where I sit, it is blindingly obvious that the ONS has it wrong. We are in growth. Arguing in big words is pointless.

    One day reality will break through. If I have it wrong, sorry. But reality will emerge.

  • Comment number 23.

    The UK GDP figures are nonsense.

    The UK is simply acting as a giant broker/middle-'person' in respect of its current UK GDP figures and so it includes 'everything' including e.g. overseas spending by UK government, 'funny money'/QE transactions and Brown/Darling 'kitchen sink throw ins'.

    Brown's Shufflenomics' is based on the suprious notion that:

    - the more that the UK government spends in tax payers money the better the benefit to the UK
    - all government spending is good for UK plc
    - all foreign business in the UK is good for the UK
    - any spending by anybody that is recordable is to be recordable wherever possible as GDP

    It is high time that UK GDP (as also elsewhere - Europe, individual countries) is properly audited so that we can see what is going on e.g.

    - split between domestic/overseas GDP
    - public/private sector
    - full breakdown of government spending/finances

    It is 2009 and is high time the nation had a full and proper breakdown of GDP figures in times for discussion twoards the next general election - Is it worth raising a petition with 10 Downing street in order to explore thsi in better detail

    The National GDP debate is just a joke?

    Take out the funny money and then see where GDP is?

  • Comment number 24.

    And let us not forget, dear G-S were one of the main beneficiaries of the US government bail out of AIG. They didn't see that one coming did they? stats or no stats. Is this not all rather missing the point - if we are going to get all anal about tenths of percent GDP statistics corrections when we know we will be bumping along the bottom (excuse the pun) for the next 5-10 years, we will all I expect lose the will to live very, very quickly. SF where's the leadership that describes where we (in the UK) need to go (economically) and how we're going to get there? Can you provide any insight? And I don't mean just cut government spending. Or is the future too bleak to contemplate/report?

  • Comment number 25.

    Since GDP includes Government spending (which as we know is largely and increasingly financed through borrowing) - perhaps the increase in GDP in the UK is something we should worry about as it merely means were are becoming more indebted.

 

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.