Pethokoukis, Economics, U.S. Economy

The US is about to add another New Jersey

Photo Credit: rozipulous/Flickr

Photo Credit: rozipulous/Flickr

Upcoming GDP revisions will add about 3%, or about $500 billion, to the size of the US economy. Some context via Credit Suisse:

– Comprehensive benchmark revisions to the national income and product accounts will be released on July 31st. There will be significant conceptual changes to how GDP is scored.

– The most important change is the reclassification of “intangible” asset spending as investment, the largest item being research and development spending. As a consequence, GDP, as well as its income-side sibling GDI (Gross Domestic Income), is expected to be roughly 3% larger in size than currently measured. That’s akin to tacking on another New Jersey, Ohio or Virginia to the nation’s broadest measure of output.

– The GDP will be larger in a statistical sense, but not any healthier. Think of the revision as analogous to measuring something with a ruler denominated in meters as opposed to yards. The unit of measurement is different, but the object being measured is not any different.

– Other “routine” annual revisions might deliver more GDP growth to the very recent past, which would narrow the wedge somewhat between the stronger labor market data and the relatively weaker GDP data. However, second quarter growth is currently tracking sluggish (latest forecast is 1.1%).

Another way to think of it: the US will be adding a Norway.

2 thoughts on “The US is about to add another New Jersey

  1. At first I thought the media will use this, but then I thought, how do they explain some great “RECOVERY!” rate, then the next quarter have to explain why it crashed back down again. But then again it didn’t stop biden, with his “summer of recovery” after Christina Romer in a hearing on camera said ……….isn’t going to happen, we’ve seen all the affect we’re going to see with “stimulus”.

  2. ” The GDP will be larger in a statistical sense, but not any healthier. Think of the revision as analogous to measuring something with a ruler denominated in meters as opposed to yards. The unit of measurement is different, but the object being measured is not any different.”

    Try this. When you measure your home lot, you can measure to the street right-of-way, the edge of the paved street or to the centerline of the road. Its still the same lot and but you can say your lot is bigger.

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