Can sectoral out and trade data improve early estimates of consumption and investment? A preliminary investigation

Input-output tables, currently published by the ONS with a lag of at least four years (and distinctly longer in earlier data), provide an accounting relation that decomposes final expenditure components into the contribution of sectoral outputs and imports. In this paper, we report on a preliminary investigation into whether past values of the associated weighting matrices can be used to nowcast real growth of Consumers’ Expenditure and Gross Fixed Capital Formation (GFCF) from timely data on quarterly growth rates of sectoral GVA and aggregate imports. For 2010-2019, we find a stark, puzzling, contrast. The nowcasts for GFCF predict roughly as well as the ONS’s first estimates of GFCF when considered as forecasts of the latest data, but the nowcasts have close to zero predictive value for consumption: the implied predictions are excessively volatile and almost uncorrelated with actual consumption growth on the latest data. We conduct a preliminary investigation of the source of these nowcast errors. Further restrictions on the nowcasting system and exploitation of other existing datasets to improve nowcast accuracy are proposed.