Methods used by OECD countries to estimate quarterly changes in inventories from survey dataWorking Party on National Accounts

3-5 October 2007Charles Aspden, OECD

Country 2005Q3 2005Q4 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 2007Q2Australia -0.2 0.1 -0.2 -0.7 0.1 0.5 0.6 -0.4Canada 0.1 0 -0.2 0.5 -0.3 -0.9 0.2 0.1France -0.3 0.4 -0.5 0.7 -0.2 -0.1 -0.2 0.1Germany -0.2 0.6 0 -0.4 0.1 -1.7 1.9 -0.6Italy -0.5 0.5 -0.1 -0.1 1.1 -0.1 -0.6 -0.1Japan -0.2 0 0.1 0 0.1 -0.1 0 -0.1United States2 -0.1 1.7 -0.5 0.5 0.1 -1.3 -0.7 0.2

Contribution of changes in inventories to quarterly seasonally adjusted GDP volume growth1

(%)

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)

Structure of report

• 4 parts plus appendix containing country responses– Overview of methods– Survey methods– Alternative methods– Combined approach

Six different ways of estimating changes in inventories

a) Enterprise surveys to obtain levelsb) Data from other sources, e.g. marketing boardsc) Commodity flow at product leveld) Residual at aggregate level (GDP(P or I)-GDP(E))e) Model using some kind of indicatorsf) Qualitative data (used in conjunction with (d)

and (e))

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

Country Ag & forest

Min Manf EG Cons Whol trade

Retail trade

Trans. & stge

Acco & food

Othe

Australia CF, M & OS

ES ES ES M & OS

ES ES M & OS ES M & OS

Canada CF ES, OS ES CF ES ES ES CFCzech Rep. ES ES ES ES ES ES ES ES ES ES

Denmark OS ES OS M ES MFinland CF ES OS ES ESHungary ES ES ES ES ES ES ES ES ES ESIceland ES1 ES1

Ireland ES ES ES ES ESJapan OS2 &

CFCF ES ES ES ES

Korea CF ES3 ES3,4 OS OS4 CFNew Zealand

M & OS

ES M M M ES ES M ES ES5 & M

Slovak Rep.

ES ES ES ES & OS

ES ES ES ES ES ES

US CF, M & OS

OS ES OS M ES ES M M M

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

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

Industry\ statistic

SE of level Relative SE of level

SE of movement

% of GDP1 in 1Q07

$264,589mManufacturing $411m 1.0% $257m 0.10Retail trade $605m 2.2% $241m 0.09Wholesal trade $776m 2.2% $601m 0.23

Table 3a Standard errors of inventory estimates, Australia

Industry\

statistic

[Absolute] Standard error of level

Inventory level

Relative standard error of level

Standard error of movement

Percentage of GDP1 in 1Q07

$41,856mManuf. raw materials

$123.5m $2,872m 4.3% 1.5% ($43m)

0.10

Manuf. finished goods and work in progress

$202.0m $7,773m 2.6% 1.0%($78m) 0.19

Retail trade $143.9m $5,328m 2.7% 1.5% ($80m)

0.19

Wholesale trade

$237.4m $9,497m 2.5% 1.3% ($123m)

0.29

Table 3b Standard errors of inventory estimates, New Zealand

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

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

Construction of deflators

• Manufacturing– Output – output PPIs– Work in progress and materials – PPIs, Wis, IPIs

• Wholesale – PPIs, CPIs, IPIs• Retail – PPIs, CPIs

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.

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

Other methods

• Belgium (as reported to WPNA in 1999)– Qualitative surveys– Econometric model

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.

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