Methods used by OECD countries to estimate quarterly changes in inventories from survey data

1. Methods used by OECD countries to estimate quarterly changes in inventories from survey data Working Party on National Accounts 3-5 October 2007 Charles Aspden, OECD

2. Contribution of changes in inventories to quarterly seasonally adjusted GDP volume growth1 (%)

3. Why the survey was undertaken • Follow-up to last year’s survey, which was primarily concerned with volume estimation. • Changes in inventories are important: • GDP(E) • Output for GDP(P) • IVA for GDP(I)

4. Structure of report • 4 parts plus appendix containing country responses • Overview of methods • Survey methods • Alternative methods • Combined approach

5. Six different ways of estimating changes in inventories • Enterprise surveys to obtain levels • Data from other sources, e.g. marketing boards • Commodity flow at product level • Residual at aggregate level (GDP(P or I)-GDP(E)) • Model using some kind of indicators • Qualitative data (used in conjunction with (d) and (e))

6. Overview of methods • 20 countries responded • 13 use enterprise surveys to obtain inventory data for at least some industries, usually manufacturing, wholesale and retail • Some of remaining 7 use commodity flow exclusively, or almost exclusively • Some use d, e and f

7. Table 2 Summary of methods used by the 13 countries using surveys for some industries ES – enterprise survey CF – commodity flow M – model OS – other source

8. Accuracy of survey estimates • Some countries do not survey small businesses. Biased estimates, unless adjustments made. • 5 countries reported sampling errors • Australia and NZ reported SE on movement • Cannot forget non-sampling errors

9. Table 3a Standard errors of inventory estimates, Australia

10. Table 3b Standard errors of inventory estimates, New Zealand

11. Deflation and revaluation • General approach: • Deflate opening and closing inventories book values • Closing level minus opening level at constant prices • Revalue to average prices of the period • Deflators should match the book values – scope, valuation basis, timing • Laspeyres indexes – deflate at detailed level

12. Deflation and revaluation cont. • Most countries conduct their inventory estimation by activity – mainly 2-digit, but some 1-digit, and others more detailed • Japan and Korea do so by commodity • Re-weighting annually or five-yearly

13. Construction of deflators • Manufacturing • Output – output PPIs • Work in progress and materials – PPIs, Wis, IPIs • Wholesale – PPIs, CPIs, IPIs • Retail – PPIs, CPIs

14. Timing of deflators • Determined by business accounting methods and turnover periods • US has provided a detailed description of how it lags its deflators. • Evidence that stocks-to-sales ratios are low and getting lower, implying deflators should be timed to be close to the end of the quarter. • Care needs to be taken with high value products subject to rapid price change.

15. Other methods • Germany • Qualitative surveys • Production and sales data • Assumption that enterprises desire to maintain stocks of finished goods in proportion to output • Consider other data

16. Other methods • Belgium (as reported to WPNA in 1999) • Qualitative surveys • Econometric model

17. A combined approach • Combined approach • Survey estimates • Commodity flow balancing • Any other pertinent information (such as from a model) • If adjustments made to changes in inventory estimates from a survey. Use estimates of inventory levels as guideposts.

18. Summary • Changes in inventories are major contributors to quarterly GDP growth • Warrant a good deal of attention and effort to produce best possible estimates with the data available • Best to use survey estimates in conjunction with commodity balancing at product level (together with any other pertinent information) • Survey levels as guideposts