Concepts, methodology, data quality The following information should be
used to ensure a clear understanding of the basics concepts that define
the data provided in this product, of the underlying methodology, and of
aspects of data quality. This information will provide users with a
better understanding of the strengths and limitations of the data, and
how they can be effectively used and analysed. 

Concepts and variables measured At the core of the PEA is the concept of
Gross domestic product (GDP) and its components. It is a measure of
aggregate economic activity that represents the unduplicated value of
production in two ways: (i) Incomes arising from production and (ii)
final expenditures on production. The first is the sum of factor incomes
generated by productive activity – that is, incomes representing the
returns to the labour and capital employed. The second is the sum of all
sales to final users (consumers, governments, business on capital
account, exports less imports). The two measures of GDP may not be equal
to each other, giving rise to a statistical discrepancy. 

GDP income-based The income-based estimates show factor incomes accruing
to labour and capital generated as part of the production process. The
largest source of factor income is wages, salaries and supplementary
labour income, which accounts for over half of GDP. The other income
components are corporation profits before taxes, interest and
miscellaneous investment income, accrued net income of farm operators,
net income of non-farm unincorporated business (including rent), and
inventory valuation adjustment. Together these six aggregates, plus
taxes less subsidies on factors of production, yield Net Domestic
Product at basic prices. GDP at market prices is calculated by adding
taxes less subsidies on products as well as capital consumption
allowances and one half of the statistical discrepancy. 

GDP expenditure-based On the expenditure-based side, GDP is broken down
into the categories of final purchases of goods and services. The major
aggregate is personal expenditure on consumer goods and services,
accounting for close to 60% of GDP. Government current expenditure on
goods and services is a second component and government and business
investment spending is a third. The sum of these components of the
summary expenditure account is referred to as final domestic demand. To
move from final domestic demand to GDP, the value of physical change in
inventories, net exports of goods and services (that is, exports minus
imports) and one-half of the statistical discrepancy are added. 

Real GDP Real GDP is related directly to other key macroeconomic
variables such as employment, business cycles, productivity and
long-term economic growth. 

Real GDP is a measure of the volume of production. To measure this
concept, GDP expenditure-based components are adjusted to eliminate the
effect of price change. This process is known as deflation, and makes
use of expenditure-side associated price indexes. Until 2001, real GDP
was calculated by using a ‘Laspeyres’ formula. As of fall 2001, the PEA
adopted the Fisher index formula, chained quarterly, as the official
measure of real expenditure-based GDP. The reason for the adoption of
this particular formula is that it produces the most accurate measure of
quarter to quarter growth in GDP. 

Coverage GDP includes all activities within the SNA production boundary.
Illegal transactions are, for the most part, excluded. 

Sector accounts The PEA also provide considerable information on the
four major sectors of the economy: persons and unincorporated business,
corporations, governments and non-residents. The sector accounts record
(i) incomes and outlays, (ii) saving and investment and (iii)
transactions in financial assets and liabilities for each of the four
broad sectors of the economy. Also included are detailed tables on
government sector revenue and expenditures for the previous year. The
sum of the final (non-transfer) income, or the final (non-intermediate)
expenditure, of the sectors equals gross national product. 

A sector has current incomes and current outlays. The difference between
the two is saving. Saving, combined with capital consumption allowances
and net capital transfers, is a source of funds for investment, or
non-financial capital acquisition. To the extent that saving exceeds
(falls short of) investment the sector is said to be in a net lending
(net borrowing) position. A second measure of net lending/borrowing is
provided by the difference between the transactions in financial assets
less the transactions in liabilities and equity. The two measures differ
somewhat due to statistical errors. 

Data sources and methodology The Provincial Economic Accounts (PEA)
provide a measure of macroeconomic activity on an annual basis, as
represented by income and expenditure-based GDP, and rely heavily on a
wealth of information from various areas of Statistics Canada. 

Sources A large amount of information from various survey divisions
within the bureau, along with other data, is compiled, integrated and
analysed as part of the complex process of arriving at provincial GDP’s
and their component categories and underlying sector accounts. 

Major suppliers of data within Statistics Canada include: Agriculture
Division, Investment and Capital Stock Division, Income Statistics
Division, International Trade Division, Distributive Trades Division,
Manufacturing, Construction and Energy Division, Industrial Organization
and Finance Division, Labour Division, Prices Division, Public
Institutions Division, and Tax Data Division. Numerous external and
administrative sources of data are also used. 

General methodology Final expenditure measures by detailed component are
compiled for the major sectors of the economy. Data are analysed for
time series consistency, links to current economic events, issues
arising from the source data, and with respect with coherence. The same
process is followed for the income measures. Initial estimates of income
and expenditure-side GDP are then produced, and the discrepancy is
assessed. Real estimates are then compared with the results of the
provincial GDP by Industry program. Annually, provincial the income and
expenditure data are benchmarked to the Input-Output Accounts. 

For further details on definitions, concepts, and sources and methods,
please refer to the Guide to the Income and Expenditure Accounts,
catalogue no. 13-603E. 

Seasonal adjustment Almost all series of the quarterly PEA are
seasonally-adjusted. Seasonal adjustment is generally made at the lowest
level of aggregation, and seasonally-adjusted aggregates are obtained by
summation. Statistics Canada’s X-11 ARIMA is used to seasonally adjust
series. 

Revisions Preliminary estimates are released in the spring following the
end of the reference period, and revised in the fall of the same year.
This latter release also comprises revisions to the three previous
years. Estimates are not normally revised again except when historical
revisions are carried out, usually once per decade. Statistical
revisions are carried out in order to incorporate the most recent
information from surveys, taxation statistics, public accounts,
censuses, etc., as well as from the annual benchmarking process of the
Input-Output Accounts. 

Data quality (accuracy) The accounts are designed as a double-entry
system in which the income- and expenditure-based GDP totals should, in
principle, be identical. In fact, a difference virtually always arises
between them due to errors in the source data, imperfect estimation
techniques, differing seasonal adjustment methods and discrepancies in
the time at which the incomes and expenditures are recorded. 

The size of the discrepancy, which stems from the estimation procedure,
is one gauge of the system's overall reliability. However, it is a
partial and quite insufficient gauge. Another quality measure is how
well real expenditure-side GDP compares to the real GDP by Industry
measure. 

No direct measures of the margin of error in the estimates can be
calculated. The quality of the estimates can be inferred from analysis
of revisions and from a subjective assessment of the data sources and
methodology used in the preparation of the estimates. 

Comparability of data and related sources It is not possible to produce
an equivalent to Provincial Economic Accounts, as measured in terms of
income and expenditures except at the aggregate level. At the level of
GDP, the unduplicated value of production can also be measured by taking
the gross value of production of each firm and subtracting each firm's
intermediate inputs in the form of its purchases from other firms
(including imports) to yield the ‘net value added’ to production by the
firm. Estimates of this type are produced in the provincial Input-Output
tables, as well as in the monthly industry-based estimates of GDP by
province. 

Certain components of income and expenditure-based GDP can be obtained
in survey divisions, but typically the data are not directly comparable.
For example, the variable “corporate profits” is published in the
Quarterly Financial Statistics release, but it differs from the
income-based GDP measure due to certain national accounts’ concept
adjustments. Also, the national estimates have to be allocated by
province and by territory to reflect where the activity took place
rather than where the head office is located.