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Econoblog

Discussion and analysis of the latest economic issues.

By Sean O'Grady, Economics Editor of The Independent.

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Treat estimates as estimates

Posted by Sean O'Grady
  • Friday, 4 December 2009 at 06:29 pm
Rather like Oscar Wilde’s talking dog, the wonder of the Office for National Statistics’ work is not that it is done badly, but that it is done at all. They’ve come in for some stick for not being able to accurately measure retail sales, too, even from the usually taciturn Bank of England. But take a step back and consider how you might even start to calculate the annual value of output in the whole British economy – all £1,400 million of it, or even just the building trade, a mere 6 per cent to that.

To its credit, the ONS produces timely data – GDP numbers faster than in any other major industrialised nation – 25 days after the end of a quarter. That preliminary estimate of GDP is based on information from nearly 40,000 businesses relating to their turnover in the first two months of the quarter. The remaining month includes data from a further 20,000 returns. In addition, each month, ONS collects 200,000 prices from 30,000 retailers.

So the first estimate of GDP is about 60 per cent estimate and 40 per cent “real” data – and almost all the construction sector information is a guesstimate.

That didn’t seem to matter much before. The problem now is that the special nature of this recession – credit crunch, housing bubble collapse, public infrastructure spending bouncing around – means building trade activity has become even more volatile than usual, and the models the ONS uses to estimate it may not be coping. The answer, as the ONS itself urges, is simply to treat estimates of GDP as just that – estimates.

Comments

weightings
pilsden wrote:
Sunday, 6 December 2009 at 09:46 am (UTC)
Hi Sean
I am concerned about the RPI weightings .Given the declines in housing costs are these as a consequence distorting the RPI
figures.
Secondly how much was gdp effectively overstated by the trade in assets of dubious value?
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