Thursday, 1 October 2015

Have ONS data revisions solved the productivity puzzle?

(This is a corrected post following my earlier post, for readers of the earlier post, please see Update note below)

The ONS yesterday revised growth up with new GDP data.  Today, they have released new productivity data which uses this new output data.  What difference does it make to the productivity puzzle?  Answer: it changes the dates of it and solves some of it, but not all.

  1. The revisions are to real output, mostly of the service sector, says the ONS. Very little revisions to hours/jobs.
  2. The figure shows annual average growth in real output per hour, whole economy, using the new and the older data.  You can see the following
    • with the new data productivity growth was lower in the 2000-07. 
    • with the new data, the downturn in productivity came earlier, in 2008.
    • with the new data, the dip in productivity and recovery in 2009/10 was not as large
    • with the new data, there is a dip down in 2012, but recovery since then.

All this means that the averaged periods look like this (all data, output per hour CAGRs)

Years old data new data
1995-00 2.17 2.29
2000-07 2.02 1.97
2007-10 -0.13 -0.37
2010-14 -0.08 0.30

Finally, the productivity gap, that is the productivity we would have expected in 2014 had the trend 1985-2007 (2.17%pa) continued after 2007  was 16.8 on the old data, but 16.1 on the new, hardly reducing the gap.

But we might do another calculation, which is to project forward productivity on the basis of trends 2000-07.  If we do that the old data trend was 2.02% giving a gap of 15.7.  But the new data trend is 1.97% giving a gap of 14.6%, a reduction in the gap of 7%.    So the gap is reduced, but mostly because we were doing worse before the recession than we thought we were (if we use market sector data, which might be better measured the gap falls from 21.4 to 20.1 points, a fall of 6%).  (The source of this reduction is basically a fall in the pre-recession productivity growth of the service sector, from 2.1%pa to 1.9%pa).

So the revisions look like a better representation of the immediate timing and do reduce the gap by around 7%.  In our earlier work we found the things like structural change, utilisation and scrapping can account (using pre Blue Book 2015 data) for around 50% of the puzzle, see here.  Perhaps we are getting closer to a solution.

Mea culpa and apologies to earlier readers of this post.  After kindly getting some comments, I checked my spreadsheet. The original ONS data contained an error in the market sector data  (the data were displaced by a cell) and I had done the revised gap calculations incorrectly: I had calculated the gap for the service sector.  The implied gap due to revisions should be about 7% less than the original one and not 20% as I estimated earlier.  I have therefore revised the data in the table and three paragraphs above.