US GDP is about to get a lot bigger

The economy will grow by 3% in July because of a shift in how the government measures output, especially of intangible assets. 

 

Starting in July, the U.S. gross domestic product will officially jump by 3%. The change isn't due to some miraculous economic event but rather from a shift in the way the government looks at statistics in the digital age.


Brent Moulton, an associate director at the Commerce Department's Bureau of Economic Analysis, says the revised benchmark economic number will take into account billions of dollars in intangible assets that have previously been left out.

"We’re capitalizing research and development," Moulton told the Financial Times, "and also this category referred to as entertainment, literary and artistic originals, which would be things like motion picture originals, long-lasting television programs, books and sound recordings."
For example, according to the FT, the output of iPads produced by Apple (AAPL +2.16%) is currently included in GDP, but the R&D needed to create those iPads isn't. With the changeover this summer, R&D will now be considered an investment and will add to the overall measured size of the economy.

Shortfalls in defined-benefit pension plans will also be reevaluated. "We will now show a liability for underfunded plans, which particularly has large ramifications for the government sector," said Moulton, "where both at the state level and the federal level we have large underfunded plan."

The revisions will make the U.S. one of the first countries to adopt a new international standard for tallying up GDP figures.

Other BEA officials say the changes aren't expected to alter views of economic trends and cycles over the past several years -- but they're not sure how the revised data and methodology will affect the future.

"We are carrying these major changes all the way back in time -- which for us means to 1929," Moulton told the FT, "so we are essentially rewriting economic history."

The new accounting will apparently add the equivalent of a country the size of Belgium to the international economy. And it might also, according to Management Today, prompt other countries to follow Washington's lead because "the U.S. provides the de facto standard for GDP measurement around the globe."