The US economy will officially become 3 percent bigger in July. Billions of dollars of intangible assets will enter the gross domestic product of the world's largest economy in a revision aimed at capturing the changing nature of U.S. output.
FINANCIAL TIMES
By Robin Harding in Washington
April 21, 2013 6:29 pm
CNBC
The U.S. economy will officially become 3 percent bigger in July as part of a shake-up that will for the first time see government statistics take into account 21st century components such as film royalties and spending on research and development.
Billions of dollars of intangible assets will enter the gross domestic product of the world's largest economy in a revision aimed at capturing the changing nature of U.S. output.
In an interview with the Financial Times, Brent Moulton, who manages the national accounts at the Bureau of Economic Analysis, said the update is the biggest since computer software was added to the accounts in 1999.
"We are carrying these major changes all the way back in time - which for us means to 1929 - so we are essentially rewriting economic history," said Mr Moulton.
The changes will affect everything from the measured GDP of different U.S. states to the stability of the inflation measure targeted by the U.S. Federal Reserve. They will force economists to revisit policy debates about everything from corporate profits to the causes of economic growth.
The revision, which is equivalent to adding a country as big as Belgium to the estimated size of the world economy, will make the U.S. one of the first adopters of a new international standard for GDP accounting.
"We're capitalizing research and development 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," said Mr Moulton.
At present, R&D counts as a cost of doing business, so the final output of Apple iPads is included in GDP but the research done to create them is not. After the change, R&D will count as an investment, adding a bit more than 2 percent to the measured size of the economy.
GDP will soar in small states that host a lot of military R&D, but barely change in others, widening measured income gaps across the U.S. R&D is expected to boost the GDP of New Mexico by 10 percent and Maryland by 6 percent while Louisiana will see an increase of just 0.6 percent.
Creative works are expected to add another 0.5 percent to the overall size of the U.S. economy. Around one-third of that will come from movies, one-third from TV programs, and another one-third from books, music and theater.
The changes are in addition to a comprehensive revision of the national accounts that takes place every five years based on an economic census of nearly 4 million U.S. businesses.
Steve Landefeld, the BEA director, said it was hard to predict the overall outcome given the mixture of new methodology and data updates. "What's going to happen when you mix it with the new source data from the economic census ... I don't know," he said.
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