SPOTLIGHT ON NATIONAL ACCOUNTS: MEASURING STATE ECONOMIC ACTIVITY
State Final Demand (SFD) and Gross State Product (GSP)


INTRODUCTION

The ABS produces a range of statistical series within the National Accounts framework which are designed to provide information on the economic activities within Australia's states and territories. On a quarterly basis the publication Australian National Accounts: National Income, Expenditure and Product (cat. no. 5206.0) provides a restricted set of data relating to the states and territories. A more complete set of accounts, Gross State Product, are published annually in the publication Australian National Accounts: State Accounts (cat. no. 5220.0). This spotlight provides a brief explanation of the available measures, the conceptual differences and their use.

SUMMARY COMMENTARY


AVAILABILITY OF STATE DATA

State Final Demand

The ABS has published quarterly estimates of SFD as part of the Australian National Accounts: National Income, Expenditure and Product (cat. no. 5206.0) since 1972. As a quarterly data set they are able to be used to quickly identify changes of economic significance at a state and territory level.

State Final Demand is conceptually equivalent to the Domestic Final Demand aggregate produced for Australia. It approaches the measurement of economic activity from an expenditure view of the economy. As the name suggests, SFD measures the final demand for goods and services within the state or territory borders, it encompasses personal and government expenditure on goods and services, and government and business fixed capital investment. It does not have the same coverage as Gross Domestic Product (GDP) as it does not include international (or interstate) trade nor change in inventories. Therefore, unlike GDP, SFD is not a measure of the output or production of a state or territories economy.


Gross State Product

Annual estimates of GSP are published in Australian National Accounts: State Accounts (cat. no. 5220.0) with a time series beginning in 1989/90. Up until 2005-06 chain volume estimates of GSP were measured using the Expenditure and Income approaches. In 2006-07, the Production approach to estimate the GSP was introduced, see Information paper: Gross State Product using the Production approach GSP(P), 2007 (cat. no. 5220.0.55.002). The State Accounts publication provides a comprehensive view of economic growth in each of the states and territories through the compilation of GSP which is conceptually equivalent to the national aggregate GDP.

The table below provides an overview of the availability of key state expenditure aggregates

Table 1. Available State data
Household final consumption expenditure	Available both quarterly and annually
Government final consumption expenditure	Available both quarterly and annually
Total gross fixed capital formation	Available both quarterly and annually
State final demand	Available both quarterly and annually
International trade-exports of goods	Available both quarterly and annually
less International trade-imports of goods	Available both quarterly and annually
International trade-exports of services	Available annually
less International trade-imports of services	Available annually
Balancing item	Available annually
Gross state product	Available annually

Comparing State Final Demand and Gross State Product (E)

As indicated above, the only key economic aggregate available by state on a quarterly basis is SFD. It is a key aggregate within the derivation of GSP using the expenditure approach (GSP(E)). GSP, the ideal measure of economic activity, is not available on a quarterly basis. Consequently it is important to understand the conceptual difference between SFD and GSP(E) before using SFD as a measure of economic growth.

SFD is the final use of goods and services within a given period by households, government and businesses. That is, the sum of Household Final Consumption Expenditure, Government Final Consumption Expenditure and Gross Fixed Capital Formation. It is conceptually equivalent to the Australia level aggregate Domestic Final Demand.

GSP(E) is the sum of the expenditures undertaken within the economy within a given period and is equivalent to the total market value of goods and services produced in a state or territory after deducting the cost of the goods and services used up in the process of production. It is therefore SFD plus exports minus imports of goods and services (either international or interstate) plus changes in inventories. Conceptually, it is equivalent to the national aggregate of GDP. Like GDP, there are three ways of measuring GSP:

• the income approach, which sums Compensation of Employees; Gross Operating Surplus; Gross Mixed Income and taxes less subsidies on production and imports;
• the expenditure approach, which sums all Final Consumption expenditures (General Government & Household); Private and Public Gross Fixed Capital Formation; Net International and Interstate Exports (Exports - Imports) and Changes in Inventories.
• the production approach, which sums the value of all goods and services produced by an industry less the cost of goods and services used up by the industry in producing the goods and services (ie Gross value added (GVA) by industry). The industry GVA's and taxes less subsidies on products are then summed to form GSP.

The major difference between SFD and GSP(E) is the estimate of trade data, both international and interstate. Only international trade in goods is available on a quarterly basis. International trade in services is available annually. There is a lack of data to estimate interstate trade data for all states and territories on an annual basis, however it is modelled and is included within the Balancing Item. More information on the methodology for estimating interstate trade is included in Australian National Accounts: State Accounts (cat. no. 5220.0) and the Australian System of National Accounts: Concepts, Sources and Methods (cat. no. 5216.0). Therefore an estimate of GSP(E) can be derived on an annual basis only.

The impact of trade will vary between states and territories and over time. Therefore it is not possible to obtain a direct correlation between SFD and GSP(E) for any state and as such SFD is not a proxy for GSP(E).


Comparison of differences in series

The differences between growth rates in SFD and GSP(E) can be quite dramatic and basing inferences on the economic activity within a particular state or territory solely on SFD can be potentially misleading. The following graphs highlight some of the differences.

SFD for New South Wales in 2000-01 showed negative growth of -0.7% , while GSP(E) showed positive growth of 2.5%. The difference between SFD and GSP(E) in 2000-01 was due to a sharp increase in International Trade - Export of Services which jumped from $16,251 million in 1999-00 to $19,734 million in 2000-01 and Interstate Trade - Export of Services which increased from $27,981 million in 1999-00 to $36,209 million in 2000-01. The effect of trade estimates have a significant effect on the overall GSP(E) movements.

The trade effects on smaller states and territories can be quite dramatic as illustrated by the South Australian series. There is usually a heavy reliance on interstate trade with these states and territories and consequently the movements in SFD can vary significantly when compared with GSP(E).


Conclusion

SFD is a component of GSP(E): GSP(E) = SFD + Net Trade (exports-imports) + Changes in Inventories. As SFD excludes international and interstate trade as well as changes in inventories it is not a measure of production within the state or territory, and is equivalent of the national aggregate Domestic Final Demand.

GSP is a more complete indicator of economic activity for the states and territories. It presents both a production and expenditure view of the states economy and is equivalent to the national aggregate Gross Domestic Product. However SFD is available on a quarterly basis while GSP is only available annually. This Spotlight also shows that the differences between growth rates in SFD and GSP(E) can be quite dramatic and basing inferences on the economic activity within a particular state or territory solely on SFD can be potentially misleading.

INQUIRIES

For further information about these and related statistics, contact the National Information and Referral Service on 1300 135 070 or David Blair on Canberra (02) 6252 6516.